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Mississippi Legislature Passes Corporate Franchise Tax Phase-Out, Income Tax Reductions

Late 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:

  • 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tax rate (currently $2.50 per $1,000 of capital) will be reduced ratably over ten years until the tax is fully repealed in 2028. 

  • 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.  

  • 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.

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© 2020 Jones Walker LLPNational Law Review, Volume VI, Number 111
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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
Dennis W. Miller, Jones Walker, governmental relations lawyer, public utility law attorney
Partner

Dennis Miller is a partner in the firm's Government Relations Practice Group and practices from the firm's Jackson office. With his practice focused primarily on legislative and governmental relations, as well as public utility law, Mr. Miller combines his corporate and public service experience to serve clients across a broad range of industries.

Mr. Miller is a graduate of the University of Mississippi, where he received his Bachelor of Arts in Business Administration, and from Mississippi College School of Law, where he was awarded a juris...

601.949.4776
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