Come to think of it, this should work in any state that
automatically conforms to changes in the federal tax law,
and allows itemized deductions. The state tax disallowance
provisions generally apply to income taxes, not sales or use
taxes, property taxes, etc.

BTW, the NY addback is for ALL income taxes imposed by any
jurisdiction, not just NY taxes. There used to be an
exception for city nonresident earnings taxes in excess of
the NYC nonresident tax, before the 1999 repeal of the NYC
tax.

Katie in San Diego
The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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Don Priebe wrote:

- quote -

Come to think of it, this should work in any state that
automatically conforms to changes in federal law and allows
itemized deductions. Back in the pre-1986-Act days, when
both state income taxes and sales taxes were allowed as
federal itemized deductions, most states required only the
income taxes to be added back.

Automatic conformity is sometimes described as a "moving
federal base." When the federal law changes, state law
changes automatically unless the legislature takes action to
decouple from the federal changes (as a number of such
states have done with respect to the federal 30% and 50%
cost recovery deductions). It won't work in states with a
"static federal base," where references to the federal law
are to the IRC as it was in effect as of a specified
conformity date, and the legislature must act to move the
date forward or otherwise conform to federal changes.
California is in the latter category.

BTW, New York disallows the deduction of all income taxes
imposed by any jurisdiction, not just NY state taxes. NYTL
Sec. 615(c)(1). There was an exception for city nonresident
earnings taxes in excess of 1/4 of 1%, which were allowed as
a deduction before the NYC nonresident earnings tax was
repealed in 1999.

Katie in San Diego
The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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- quote -

Here in Colorado we may have a very complicated tax refgund
problem either in 2005 or a later year. Our constitution
requires that the state refund money received in excess of
"TABOR" limits (even if it has to cut the budget to do so).
In past surplus years, the refund was calculated on the
income tax return for the year, but the enabling legislation
specified that the refund came solely from sales tax
receipts; thus it didn't result in taxable income the
following year.

Now, with the deductibility of sales tax, each taxpayer may
have to consider whether a TABOR refund will be taxable in
the following year, in whole or in part, depending on
whether they took the sales tax deduction or the income tax
deduction on the prior year return. Most people would be
claiming the income tax deduction; some retirees and people
with substantial state tax credits or Section 529
contributions might be better off with the sales tax
deduction.

Interesting for us tax preparers!

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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Arthur Kamlet wrote:

- quote -

No, because the INCOME tax wasn't deducted.

- quote -

I wasn't aware that the 2005 instructions were in draft form
yet! It will obviously be different.

- quote -

Anything can accidentally hit someone. As for whether this
should, I would say no.

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Just going by California experience, I'd think that since
the refund is from INCOME tax which you DIDN'T use to reduce
Federal taxable income, the refund should not be taxable.

(I've got a couple of clients who file a couple of years
late - consistently. Great fun keeping track of what what
received, when, for when.....and attaching an explanation to
the 1040.)

Nan, EA in LA
Entrenched belief is never altered by the facts.....

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Arthur Kamlet wrote:

- quote -

Verrrry interesting question, Art.

First of all, I would think you only use that worksheet if
you need it, i.e. if you took a deduction for state income
taxes previous year. And since you did not, don't use it.
Ergo, state tax refund not includible.

That's my story, and I'm sticking to it, Mr IRS auditor!

ChEAr$,
Harlan

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"Arthur Kamlet" <kamlet[at]panix.com> wrote:

- quote -

States routinely send 1099-Gs for state tax refunds for
people who didn't even itemize. I would ignore it
COMPLETELY. Sometimes you have to use your noggin and not
rely on the software.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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- quote -

No.

- quote -

Disagree. The first line of the worksheet has you enter the
amount of the refund shown on the 1099-G, but not more than
the state income tax you deducted.

As an interesting side note, on a NY state return you can
(optionally) use your federal itemized deductions less your
NY state income tax deduction. At a tax seminar last week
the NY state instructor emphasized that this add back
applies by statute only to the NY INCOME tax. Thus NY sales
tax can be a deductible item on a NY return.

--
Don EA in Upstate NY

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kamlet[at]panix.com (Arthur Kamlet) writes:

- quote -

No. You didn't deduct the refunded amount. We can hope
that they'll get the worksheet updated for the 2005 returns
so that they emphasize that it applies only if you deducted
income tax in 2004.

Phil Marti
Clarksburg, MD

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If I elect to deduct state and local sales taxes for 2004,
and in early 2005 I receive a 2004 State Income tax refund
on a 1099-G, is that refund taxable?

The so-called "Tax Benefit Rule" would say I had no tax
benefit from that refund so it should not be taxable.

Even though the worksheet associated with Form 1040 Line 10
asks for the total schedule A amount and not how much state
income tax was deducted. Even last year if I didn't deduct
any state income tax, perhaps because other Schedule A
deductions reduce taxable income to zero, and got a refund
of state income tax, the worksheet has me declare it as
taxable.

Can I be very confident the income tax refund will not be
taxable for a year when I itemized state sales tax? Or is
this something that could accidentally hit me?

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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