Mississippi House Passes Major Income Tax Elimination Bill

Last week, the Mississippi House of Representatives passed a sweeping bill that would eliminate the state’s personal income tax while shifting the tax burden onto sales tax. Within 48 hours, the Republican-led House fast-tracked the 308-page HB 1439, the Mississippi Tax Freedom Act of 2021, through the Ways and Means Committee and off the House floor by an 85-34 vote. 

The intent of the legislation is to phase out the personal income tax over 10 years by immediately exempting individuals making less than $50,000 a year and couples making less than $100,000 a year. This would apply for tax filings in 2022. The bill would also reduce the state’s grocery tax, the highest in the country, from 7% to 4.5% through June 2024, with further reductions to 4% in 2026 and 3.5% in 2027.

To offset the revenue lost by these changes, the bill would increase several taxes:

• General sales tax increases from 7% to 9.5%
• Liquor sales tax increases from 7% to 9.5%
• Farm equipment sales tax increases from 1.5% to 4%
• Sales tax on cars, trucks, planes, and mobile homes increases from 3% to 5.5%
• Sales tax on manufacturing machinery increases from 1.5% to 4% 

The phase out of the income tax would continue as long as the increase in tax revenue continues, with the expectation that within five years, income up to $100,000 for a single individual would be exempt from income tax. At that level, it is expected that 83% of taxpayers would be exempt from the income tax. 

The next deadline for House members is March 2, 2021, when all general bills originating in the Senate must be passed out of committee to begin work before the House as a whole. Working on Senate bills will continue until March 10, 2021, after which both houses will have to concur on a bill or go to conference committee to finish working on the bill. As HB 1439 is considered a revenue bill, the Senate has more time to consider it. The deadline for Senate floor action on revenue and appropriation bills that originated in the House is March 16, 2021. 

It is unknown how the bill will be received in the Senate. Some members appear to be concerned with  the fear of revenue loss. The speed of the bill’s passing did not allow for any outside analysis or independent study of the legislation to determine if it will work as intended. The Republican Governor, Tate Reeves, was not consulted in the drafting of the legislation but has indicated support for eliminating the personal income tax.  

We will keep you updated on the status of this major tax bill.

TECHNICAL INFORMATION CONTACTS:

Mark L. Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com 

Mary Bernard
Director
Ryan
401.272.3363
mary.bernard@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.