CONTENTS PART C Section 207. Denial of deduction for certain State, local, and foreign taxes.. Section 208. Personal casualty and theft losses.. Section 209. Charitable, etc., contributions and gifts.... Section 210. One-percent limitation on medicines and drugs for those over SECTION 207. DENIAL OF DEDUCTION FOR CERTAIN STATE, LOCAL, AND FOREIGN TAXES Generally, under present law, all State and local taxes are deductible except death and gift taxes and local improvement taxes. The deductible State and local taxes can be conveniently divided into those of general application and those more or less specialized as follows: General local taxes and local revenues produced: 1. Real and personal property taxes, $18 billion. 2. Income taxes, $3.9 billion. 3. General sales and gross receipts taxes, $5.4 billion. Special local taxes and local revenues produced: 1. Gasoline taxes, $3.5 billion. 2. Alcoholic beverage taxes, $0.7 billion. 4. Auto and drivers' licenses, $1.8 billion. 5. Selective sales or excise taxes not included above (such as those on admissions, room occupancy, etc.), $1.8 billion. Figures above include all collections in connection with business, investment, or personal activities. The general taxes listed above account for about $7.5 billion of the total $10 billion of taxes deducted as personal deductions per year. The special taxes above listed account for about $2.5 billion of the taxes deducted as personal deductions per year. The bill eliminates the personal deduction for the special taxes above described. Specifically, it provides that only the following State, local, and foreign taxes may be deducted; (1) State and local, and foreign, real property taxes. (2) State and local personal property taxes. (3) State and local, and foreign, income, war profits, and excess profits taxes. (4) State and local general sales taxes. The bill defines the term "personal property tax" as any ad valorem tax imposed on an annual basis in respect of personal property. So, for example, a personal property tax collected annually on automobiles measured solely by their value will continue to be a deductible tax. The bill defines a "general sales tax" as a tax imposed at one rate in respect of a broad range of items. It provides, however, that a tax may be a "general sales tax" even though food, clothing, medical supplies, and motor vehicles are taxed at a lower rate or completely exempted. The bill continues existing law by providing that all the special taxes for which personal deductions are abolished shall, nevertheless, continue to be fully deductible to the extent that they are business expenses or expenses incurred in the production of income. Under the bill these taxes will be fully deductible even though they were incurred in connection with the acquisition of a capital item. 47 Under existing law, in one exceptional case, it is provided that taxes paid for a local improvement may be deducted. The bill removes this special exception from the law. It is estimated that this section will increase the revenues by about $520 million per year. About 40 percent of this revenue increase is produced by the elimination of the deduction for gasoline taxes. The provisions are to apply to taxable years beginning after December 31, 1963. SECTION 208. PERSONAL CASUALTY AND THEFT LOSSES Under present law taxpayers who itemize may claim a personal deduction for a loss of property held for purely personal use (i.e., property not used in connection with a trade or business and not held for the production of income) if this loss arises from fire, storm, shipwreck or other casualty, or from theft. Under the bill personal losses arising from casualty will continue to be deductible but only to the extent that the loss from each casualty exceeds $100. Thus, if a taxpayer has an automobile accident in which he suffers damage to his automobile of $175 he will be entitled to a deduction of $75 ($175 minus $100). If, during the same year, he has a second accident in which he suffers damage to his car of $125 he will be able to deduct an additional $25. However, if a taxpayer has an automobile accident in which the total damage is only $90 he will not be able to deduct anything. It is intended that a liberal rule be applied in determining what constitutes a single casualty. Thus, damage to a house attributable to both wind and water will be considered from a single casualty if all the damage is the result of a single storm. The $100 limitation applies to a joint return by a husband and wife as well as to a separate return of either. Thus, if they file separate returns each is subject to a separate $100 floor with respect to each casualty. On the other hand if they file a joint return they are together subject to only one $100 floor with respect to each casualty, whether the loss is sustained with respect to jointly or separately owned property. The bill does not, however, change existing law with regard to property used in the trade or business or held for the production of income. Accordingly, losses of property used in a business will continue to be fully deductible. The provision applies to losses sustained after December 31, 1963. It is expected to increase revenues by $50 million a year. 49 |