To amend the Internal Revenue Code of 1986 to allow residents of States with no income tax a deduction for State and local sales taxes.

January 8, 2003

Mr. COOPER (for himself, Mr. GORDON, Mr. TANNER, and Mr. DAVIS of Tennessee) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to allow residents of States with no income tax a deduction for State and local sales taxes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Stop Discrimination Against Seven States Act of 2003'.

SEC. 2. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES FOR RESIDENTS OF STATES WITH NO INCOME TAX.

(a) IN GENERAL- Subsection (b) of section 164 of the Internal Revenue Code of 1986 (relating to definitions and special rules) is amended by adding at the end the following:

`(5) GENERAL SALES TAXES- For purposes of this section--

`(A) DEDUCTION OF STATE AND LOCAL SALES TAXES BY RESIDENTS OF STATES IMPOSING NO INCOME TAX- In the case of an individual who is a resident for more than half of the taxable year of a State which imposes no income tax on income earned within such State by residents of such State and who elects the application of this paragraph, subsection (a) shall be applied--

`(i) without regard to the reference to State and local income taxes,

`(ii) as if State and local general sales taxes were referred to in a paragraph thereof, and

`(iii) without regard to the last sentence.

`(B) DEFINITION OF GENERAL SALES TAX- 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.

`(C) SPECIAL RULES FOR FOOD, ETC- In the case of items of food, clothing, medical supplies, and motor vehicles--

`(i) the fact that the tax does not apply with respect to some or all of such items shall not be taken into account in determining whether the tax applies with respect to a broad range of classes of items, and

`(ii) the fact that the rate of tax applicable with respect to some or all of such items is lower than the general rate of tax shall not be taken into account in determining whether the tax is imposed at one rate.

`(D) ITEMS TAXED AT DIFFERENT RATES- 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.

`(E) COMPENSATING USE TAXES- A compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term `compensating use tax' means, with respect to any item, a tax which--

`(i) is imposed on the use, storage, or consumption of such item, and

`(ii) is complementary to a general sales tax, but only if a deduction is allowable under this paragraph with respect to items sold at retail in the taxing jurisdiction which are similar to such item.

`(F) SPECIAL RULE FOR MOTOR VEHICLES- In the case of motor vehicles, if the rate of tax exceeds the general rate, such excess shall be disregarded and the general rate shall be treated as the rate of tax.

`(G) SEPARATELY STATED GENERAL SALES TAXES- If the amount of any general sales tax is separately stated, then, to the extent that the amount so stated is paid by the consumer (other than in connection with the consumer's trade or business) to the seller, such amount shall be treated as a tax imposed on, and paid by, such consumer.

`(H) AMOUNT OF DEDUCTION TO BE DETERMINED UNDER TABLES-

`(i) IN GENERAL- The amount of the deduction allowed under this paragraph shall be determined under tables prescribed by the Secretary.

`(ii) REQUIREMENTS FOR TABLES- The tables prescribed under clause (i)--

`(I) shall reflect the provisions of this paragraph,

`(II) shall be based on the average consumption by taxpayers on a State-by-State basis, as determined by the Secretary, taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation, and

`(III) need only be determined with respect to adjusted gross incomes up to the applicable amount (as determined under section 68(b)).'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

END