Deductibility of Sales Taxes

1. Taxpayers MUST itemize in order to use the deduction.
   
2. Taxpayers must choose between deducting state and local sales taxes and deducting state and local income taxes (unlike the law pre-1986).
   
3. The provision is effective for two tax years, starting December 31, 2003.
   
4. Taxpayers can use either their actual receipts from purchases or tables that IRS is to provide. Those who use the tables will also be permitted to add taxes paid on motor vehicles, boats and other Treasury-specified items. IRS tables are to be based on average spending by taxpayers in each state and adjusted for various attributes (e.g., income, filing status, number of dependents).
   
5. The deduction is not limited to taxpayers in states that impose no income tax. Taxpayers in high sales tax and low income taxes may be able to take advantage of the deduction.
   
6. For those subject to AMT, the deduction is treated identically to the deduction for state and local income taxes, and will not be allowed in calculating taxpayers' AMT.

Quoted From – National Association of Enrolled Agents Newsletter October 15, 2004