I was just working on my first 2004 1040 where the Lacerte program determined that the new sales tax deduction was higher than the state income tax payments, for a client up in Missouri.  The program also reminded me that this was based on the IRS Publication 600 sales tax tables, which only include the state-wide tax rates.  Since almost all cities and counties tack on their own additional sales taxes, I wanted to add those in for this client.

I knew the client’s county name, and was prepared to scour the Missouri sales tax tables for the applicable rate, but was pleased to find an automated look-up feature on the DOR’s website, where we can just enter a person's address and it pops up with the total sales tax rate.  Clicking on another button on the results page gives the actual breakdown between state and local rates.

In this case, the state-wide rate was 4.225% and the local rate was another 1.0%.  When I added the additional local rate into the Lacerte input screen, the amount it computed as a Schedule A deduction went from $746 to $923.  I know there are places just around Arkansas where the local sales taxes practically double the state rate, so I can see taking this additional step being worth the while for the clients.

Actually, the best thing would be for Lacerte and other tax prep software to add a more comprehensive database of local sales tax rates to their programs rather than make us do these things manually.  I have passed this idea along to Lacerte, and hopefully they will add this for their 2005 programs.  This is what I sent to Lacerte via their product feedback screen:

Rather than just use the IRS's Pub 600 state-wide sales tax table, it would be very useful if your program could use the clients' zipcode to look up their combined local and state rates so that we don't have to manually enter the local rates for each client.  Your billing department already uses this exact kind of database, so we know it exists.

This late in the year, I wouldn’t expect Lacerte to make such a modification to the 2004 program. Even though I will be preparing over 95% of my 2004 1040s after April 15, Lacerte operates under the assumption that all of their users are finished by April 15 and has no interest in working on prior year programs after that date. 

I would be interested in hearing from other tax preparers who use different software as to any that do already have a more accurate local sales tax look-up feature included.

Since our clients are literally spread all over the country, I am not planning to look up each one’s local sales tax rates, unless it turns out that we already have a sales tax deduction higher than that for state income taxes, or are very close.  I’m hoping other states’ websites will make it as easy to determine the local rates as it was for Missouri.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/13/2005 03:43:00 PM Send this post: