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Discussion
Section 164(a)(3) provides inter alia that State income
taxes are allowed as a deduction for the taxable year within
which they are paid or accrued. This section was added to the
Code by the Revenue Act of 1964 (the Act), Pub. L. 88-272, sec.
207(a), 78 Stat. 19, 40. Before the Act, the Code did not
specifically list the deductible taxes. Thus, according to
petitioners, the preexisting law was changed by the Act to
provide "unequivocally" for the deduction of the State income
taxes for the purpose of calculating adjusted gross income, and,
when read together, sections 62(a)(4) and 164(a)(3) "specifically
provide that state [sic] income taxes attributable to property
held for the production of royalties are deductible from an
individual's gross income to compute the individual's adjusted
gross income." We disagree.
The general rule under the law before the Act was that State
and local income taxes paid or accrued by an individual were
deductible as itemized deductions for Federal income tax
purposes. See H. Rept. 749, 88th Cong., 1st Sess. (1963), 1964-1
C.B. (Part 2) 125, 171-172. The Act specifically provides for
the continued deductibility of State and local income taxes in
this manner, while, in the interest of tax equity and ease of
compliance, denying the deduction of certain other taxes,
devoting any revenue gain from the denial of those other
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