iLate Monday evening, on April 18, 2016, the Mississippi House and Senate approved a conference committee report on Senate Bill 2858, known as the "Taxpayer Pay Raise Act of 2016", to implement a ten-year phase out of the corporate franchise tax, and also to phase-in an individual and corporate income tax exemption on the first $5,000 of taxable income. Barring any last-minute procedural delays, the bill could go to Governor Phil Bryant possibly as early as today, April 20, 2016. Highlights of the bill are as follows:
Beginning in the 2018 tax year, S.B. 2858 will enact the following changes:
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The franchise tax rate (currently $2.50 per $1,000 of capital) will be reduced ratably over ten years until the tax is fully repealed in 2028.
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The first $100,000 of taxable capital will immediately become exempt from the franchise tax, and that exemption will remain constant throughout the phase-out period. This provision was not included in the original bill, and will likely serve to completely exempt many small businesses from the franchise tax in the first year.
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The present 3% income tax bracket, which applies to the first $5,000 of taxable income, will be phased out over five years, after which the existing 4% and 5% rates will continue to apply to taxable income in excess of $5,000 and $10,000, respectively. These income tax reductions apply to both individual and corporate taxpayers.
Beginning in the 2017 tax year, self-employed taxpayers also will be entitled to deduct from their Mississippi gross income a portion of their federal self-employment taxes. This deduction will equal 17% of that tax in 2017, 34% in 2018 and 50% for tax years 2019 and after (being equal to the federal deduction).
These tax cuts have been politically charged, and initial reports suggest the final bill could ultimately cost the state over $260,000,000 in annual franchise tax revenue once fully implemented, and potentially $415,000,000 when considering the income tax cuts. While many commentators characterized the early franchise tax cut proposals as hand-outs to large corporations, the final income tax breaks and the late addition of the $100,000 franchise tax exemption undoubtedly will benefit a large number of small businesses and virtually every individual taxpayer in the state.
