For a significant period of time, since 1873 in fact, the Supreme Court has held that the taxing power of the states is limited by the dormant commerce clause. State taxes on interstate activity must be “fairly apportioned,” meaning that if more than one state may legitimately tax the same income, each state may only tax its fair share. This flows from the Commerce Clause’s negative converse, i.e. its restriction prohibiting states from enacting legislation that overly burdens or discriminates against interstate commerce. In many cases dealing with the taxation of multi-state businesses, courts have enforced the requirement that state taxes be fairly apportioned.
Taxpayers that itemize deductions on Schedule A, (and file Form 1040) can deduct the cost of state income taxes on their federal tax return. The ability to deduct the full cost of these taxes has its obvious advantages. Taxpayers may either claim such a deduction from state and local income taxes or state and local sales taxes, but not both. Basically, to be deductible, the tax must be imposed on a taxpayer and must have been paid during the particular tax year. Taxpayers that elect to deduct state and local general sales taxes, may use either their actual expenses or the optional sales tax tables.
As 2016 starts to move forward, Congress seems especially less likely to agree on legislation extending all the tax breaks that have currently expired. S. 1946, Tax Relief Extension Act of 2015, generally provides for a two-year extension while the Tax Cuts for America Act of 2015, H.R. 1808, has only seven tax provisions, and the bill would extend those benefits for only 2015 retroactively.
In recent tax years, taxpayers have faced a great deal of uncertainty in determining whether they can continually and regularly depend on tax incentives to help them lower their taxes. At the beginning of 2013, Congress enacted the American Taxpayer Relief Act of 2012, which extended 51 provisions for two years retroactively through the beginning of 2012 and through 2013.