For the 2006 tax year, taxpayers have the choice of deducting either state sales and use taxes OR state and local income taxes (not both) when itemizing deductions on schedule A of their individual income tax returns.

Three methods are available to determine which deduction will provide the greatest benefit:

1. Deduct state and local income taxes (including California SDI).

2. Deduct actual sales and use tax paid based on receipts.

3. Deduct sales and use tax from a table provided by the IRS and add the tax paid on motor vehicles, boats, and other items specified by the IRS.

If you determine that it is in your best interest in 2006 to deduct sales and use tax, then you should wait to pay your fourth quarter state estimated tax payment until January 2007. This will increase the amount of state tax you pay next year to possibly provide you with a greater deduction in 2007. Also remember that, similar to deducting state income taxes, the deduction for state sales and use taxes is not deductible when computing Alternative Minimum Tax. Please contact us if you have any questions regarding current tax provisions or your current tax situation.

NOTE — The information above relates to changes in federal tax regulations. State regulations may differ. Please contact us for more information.