Sales Tax Deduction

[geekgirldany]

I hope you guys can give me a little pitty here and answer my question.

I have a customer that has over $22,000 in sales tax she paid for buiding her house in 2006. Now this is a combination of 4% state tax and 3% local tax. So total 7%. Is she able to deduct the total 7% or just the state tax? I am getting a little confused on the part in the TTB that says:

"Calculate actual taxes paid but only from purchases where the tax rate is the same as the general sales tax rate".

I'm a little out of it. She just sat her for 1 1/2 hours going through the receipts and me trying to make sure I am doing it correctly.

Thank you for any help.

[Brad Imsdahl]

IRS Pub 600 makes the following statement with regard to actual expenses:

“Generally, you can deduct the actual state and local general
sales taxes (including compensating use taxes) you
paid in 2006 if the tax rate was the same as the general
sales tax rate. However, sales taxes on food, clothing,
medical supplies, and motor vehicles are deductible as a
general sales tax even if the tax rate was less than the
general sales tax rate. If you paid sales tax on a motor
vehicle at a rate higher than the general sales tax rate, you
can deduct only the amount of tax that you would have paid
at the general sales tax rate on that vehicle. Motor vehicles
include cars, motorcycles, motor homes, recreational vehicles,
sport utility vehicles, trucks, vans, and off-road vehicles.
Also include any state and local general sales taxes
paid for a leased motor vehicle. Do not include sales taxes
paid on items used in your trade or business.”

That paragraph is supported by IRC Section 164(b)(5)(D) which says, “Except in the case of a lower rate of tax applicable with respect to an item described in subparagraph (C), no deduction shall be allowed under this paragraph for any general sales tax imposed with respect to an item at a rate other than the general rate of tax.”

The items referenced in subparagraph (C) are the special rules for food, clothing, medical supplies, and motor vehicles, mentioned in the Pub 600 paragraph referenced above.

IRC Section 164(b)(5)(B) says, “The term general sales tax means a tax imposed at one rate with respect to the sale at retail of a broad range of classes of items.”

What this means is that other than those special items listed, you cannot deduct sales tax on items taxed at a different rate than that of the general state and local sales tax rate imposed on normal purchases in your area. For example, Minnesota has a state wide sales tax rate of 6.5%. The city of Minneapolis also adds a 0.5% local sales tax, so that the general state and local rate in Minneapolis is a combined 7%. That is the deductible rate for purchases within the city of Minneapolis.

In addition to the above, Minneapolis has a Downtown Liquor Tax, Lodging Tax, Downtown Restaurant Tax, and Entertainment Tax rate of 3%.

Since the added 3% local tax for those specific items is greater than the General Sales tax rate for the Minneapolis area, you cannot deduct the sales tax on those items.

[geekgirldany]

Thank you so much Brad for clearing that up for me. In Georgia the state tax rate is 4%, local is 1%, there there is another 2% for Special Purpose and Educational. I also read this on Georgia Dept Of Revnue site:
"Each county government may impose up to 3% local sales tax in addition to the state’s 4% sales tax."

So the combined 4% state and 3% local is fully deductible. I am in another county. But Fulton does charge another 1% for Marta (subway).

[Chief]

Marta

I was really impressed with Marta when in Atlan ta. I wish Tampa
Bay had this kind of mass transit. I can't understand why the suburban areas aound Atlanta dont want to be connected to it. Their fear of city crime coming to their upscaled communities can be solved by adequate law enforcements. I think snobbery plays the greater role Atlanta is lightyears ahead of the country bumpkins in Tallahassee.

[geekgirldany]

Marta is Smarta That is the slogan anyways. I live in Forsyth County. There was talk of bringing it down the 400 corridor from atlanta but I think that was stopped. We do have Marta buses running through town now. Takes people from here to Sandy Springs and a couple of other places. Never thought I would see a Marta bus in our little town. Forsyth county has grown so much it would be a good idea just to have more buses. The traffic is getting bad.

[Bird Legs]

Marta?

Here in Texas we do not have Marta, however, in the area around Marfa, we do have the
Marfa lights.
So much for taxes for this day.