Sales tax deduction on federal returns welcome news for Nevada residents

Kevin Rademacher

Monday, Dec. 13, 2004 | 10:34 a.m.

Break out the shoe boxes, it's time for Nevadans to start saving receipts.

That's the advice being given by local accountants in response to the resurrection of a federal sales tax deduction. With the new provision -- signed into law by President Bush on Oct. 22 --taxpayers who itemize their federal deductions will be allowed to choose between a sales tax deduction or a state income tax deduction.

The move was particularly welcome in nine states, including Nevada, where resident do not pay state income tax.

Las Vegas CPA Kim Walker said the move presents a huge opportunity for individual taxpayers.

"I'm telling everyone to get their envelopes ready to save those receipts, whatever it takes," she said. "At the end of the year, we'll add it all up. This should really be a help."

Bonnie Houldsworth, managing partner with the Henderson accounting firm Houldsworth, Russo & Co., said clients are beginning to ask questions about the looming deduction.

"Everyone's excited about it," she said. "It's about time they did this."

The deduction is not unprecedented. IRS rules allowed sales tax deductions until the provision was eliminated in 1986.

The new rule allows taxpayers to save their receipts and deduct the total of their annual sales tax expenses or claim a standard deduction spelled out in an IRS-created chart that determines an estimated sales taxes based on income and the number of family members. Walker said it will almost certainly be better to save receipts than use the federal chart.

"In my experience, the IRS charts always give less than the deduction would be otherwise," she said.

Walker said that because the tax break was only initiated in October, there probably isn't enough time for consumers to get the maximum benefit through saved receipts. But 2005 should allow significant tax savings once taxpayers have more time to prepare.

The break should be even more useful in Las Vegas where a flood of new residents are buying homes and furniture as they settle into their new surroundings. Walker also pointed to the use of home equity loans -- a byproduct of the soaring home values here -- to make other large purchases, such as cars.

"It should be very significant," she said.

So far, local business executives said word is spreading slowly about the tax benefit waiting for consumers.

"It's been mentioned a little bit, but we wish more people knew about it," said Tony Grissom, sales manager at Shack-Findlay Honda in Henderson.

Once word spreads, he said the sales tax deduction could spark some additional activity for dealers, but most of the momentum has probably been chewed up by the rush of incentives offered by car makers.

"We've thrown so many rebates out there -- no Honda but some of the other manufacturers -- buyers are kind of callous to it," Grissom said.

Raphael Tulino, an IRS spokesman, said the standard deduction tables and other details of the sales tax allowance are still being finalized. A few of the particulars that are known are that the sales taxes on many automobile and boat purchases will be able to be added on top of the standard sales tax deduction spelled out in IRS charts that are still being created.

He also emphasized that in order to get the new deduction, taxpayers must itemize their deductions. Tulino added that only about a third of all taxpayers itemize while the majority of U.S. taxpayers opt for the standard deduction allowed by the IRS.