In late 2020, Governor Reeves caused a bit of a stir during one of his Facebook Live broadcasts by announcing that he supported and intended to push for a repeal of the state’s income tax. On February 22, 2021, House Bill 1439 was introduced, calling for the phase out of Mississippi’s individual income tax.
The authors of the bill have opted for a unique method of repealing the tax. Rather than a complete repeal of the tax, or even a phase-out of the tax, HB 1439 instead calls for an increase in the personal exemption. Under the proposed rules, the current $6,000 exemption would be increased substantially to $47,700 ($95,400 for married individuals) for 2022.
The tax collected by the Mississippi Department of Revenue would fluctuate due to annual adjustments to the exemption amount. The Commissioner of Revenue would be required to revise the personal exemption amount each year using a formula directly tied to annual tax revenue growth adjusted for inflation. There are scenarios where the exemption would not increase, and the personal income tax could never be phased out, although that is the intent.
This bill does not address corporate income tax. However, it does contain several provisions that will likely face some push-back from Mississippi businesses. To fund the budget shortfall that would be created, this bill seeks to add an additional sales tax of 2.5% to most taxable transactions.
This would increase the 1.5% tax rate currently applied to farm and manufacturing equipment to 4%, the 7% tax rate on most retail sales would be increased to 9.5%, the 3% tax on vehicles would be increased to 5.5%. Several other changes include an increased tax on gasoline and other fuels and an additional tax on cigarettes and tobacco products.
The bill does provide a tax cut for grocery sales to be phased in over two years and a statewide raise for teachers.
This bill will receive a wide variety of reactions from individuals and businesses alike. On February 23, 2021, this bill passed the House and is on its way to the Senate.
HORNE will continue to keep you updated. If you have any questions, contact your tax advisor.