Residents of states with no state income tax could be left out in the cold if no deal is reached

Elimination of the Sales and Local Sales tax deduction could affect those taxpayers in states with no state tax who itemize their deductions.  As there is no state tax to deduct on Schedule A of Form 1040, since 2004 have been able to deduct sales taxes instead.  Without extension of this deduction, taxpayers in zero personal income tax states could be significantly affected. 

Taxpayers generally have two ways of calculating the sales tax deduction amount.  For taxpayers who keep careful receipt records, they can deduct the amount of sales tax paid up to the general sales tax rate.  In addition, a taxpayer may also deduct selective sales tax for which the applicable tax rate was the same as the general sales tax rate (with exceptions).

The alternative method for determining the amount of the deduction is based on sales tax tables provided by the IRS.  This amount would be added to the sales taxes paid on motor vehicles aircraft, boats, and homes.

While most state have a sales tax, which will provide them some benefit if they itemize their deductions, residents of states with no state level personal income tax could be left out in the cold.  Residents of these states should be paying close attention to this deduction as the fiscal cliff discussions come to a close.