The American Jobs Creation Act of 2004, was signed into law on Oct. 22, 2004.  One of the provisions of the new act is to reintroduce an itemized deduction for state sales and use taxes for individuals. Under the new law, an individual must choose whether to take as a deduction the state and local income taxes paid, or the state sales and use taxes paid. This election is made for each tax year, so a taxpayer may change his/her choice annually.  Because it is an itemized deduction, the sales tax deduction is available only to taxpayers who claim itemized deductions, and not to taxpayers who claim the standard deduction.   

Taxpayers have two options with respect to the determination of the sales tax deduction amount. Taxpayers may deduct the total amount of general state and local sales taxes paid by accumulating receipts showing general sales taxes paid. As the legislation was just signed into law in October, it is likely that many taxpayers will not have saved all their receipts since the beginning of the year. It may be possible in our credit card-dominated society to reconstruct from your credit card records amounts that may be in excess of the optional table amounts. Some credit card issuers provide an annual breakdown of expenses that may provide sufficient information to estimate the overall sales tax actually paid.

Alternatively, taxpayers may use tables created by IRS. Taxpayers who use the tables created by IRS may, in addition to the table amounts, deduct eligible general sales taxes paid with respect to the purchase of motor vehicles, boats and other items specified by IRS. Sales taxes for items that may be added to the tables would not be reflected in the tables themselves.

The standardized table, just published by the Department of Treasury as Publication 600, Optional State Sales Tax Tables, provides a table based on an amount of available income and the number of exemptions.  Available income is adjusted gross income plus certain nontaxable income, such as tax-exempt interest, Veteran's benefits, Nontaxable combat pay, and Workers' compensation.  The table only takes into consideration the state tax rate, so Shelby county residents must adjust the table amount to include the local tax rate as well.  Just as an example, a family of four with two children and available income of $100,000, would have a deduction of $1,977.