May 7, 2021

Volume XI, Number 127

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How to Surreptitiously Renege on Tax Incentives Agreements – the Consequences of Mississippi Income Tax Repeal

Mississippi’s proposal to repeal the state’s individual income tax portends to surreptitiously renege on many of the state’s existing tax incentives agreements.  One of Mississippi’s more valuable economic development tools is the Advantage Jobs Program providing a cash rebate to certain businesses that create high-paying new jobs in the state.  The rebate is based on a percentage of employee payroll tax withholdings, and the number of new jobs required for eligibility varies based on whether the business is located in more or less developed areas of the state.  The term of these incentive payments can extend to up to 10 years.

H.B. 1439 proposes to immediately exempt from the individual income tax the first $50,000 for single taxpayers and $100,000 for married couples.  The entire individual income tax potentially could be eliminated in ten years, although that is far from certain based on the complex phase-out formula used in the bill.  This sudden increase in exempt wages could effectively eliminate future withholdings for many of the recently hired employees who originally qualified for Advantage Jobs.  Because this rebate is calculated as a percentage of a company’s individual income tax withholdings, income tax repeal could effectively nullify many Advantage Jobs incentives previously negotiated to lure businesses to the state.  Unquestionably, this could fundamentally alter the original economic equation relied upon by many of these taxpayers during the site selection process.

While state leaders appear to be increasingly aware of this consequence (whether that was unintended or otherwise), no formal proposal has been offered to address the issue.  If passed in its current form, H.B. 1439 could not only complicate current economic development negotiations, it could also lead to discord and possible litigation by numerous taxpayers who relied upon these valuable incentives when selecting Mississippi for their recent expansions and relocations.

The current tax repeal proposal swiftly and overwhelmingly passed the House, but is meeting increasing resistance in the Senate.  The bill remains viable and it is too early to predict whether it might ultimately pass or what changes might be made during the remainder of the current session.  Jones Walker will continue to monitor this and other tax related bills and will provide updates as things develop.

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© 2021 Jones Walker LLPNational Law Review, Volume XI, Number 69
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About this Author

John Fletcher Tax Lawyer Jones Walker Law Firm
Partner

John Fletcher is a partner in the firm's Tax & Estates Practice Group and practices from the Jackson, Mississippi office. With more than twenty years' experience in the legal, corporate, and accounting arenas, his practice focuses primarily on state tax matters, encompassing Mississippi, Louisiana and multi-state income, franchise, sales, use and local ad valorem taxes.

He is a contributor for Cooking with SALT, a legal blog committed to providing timely insights on recent legal and practical developments concerning clients...

601-949-4620
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