All businesses in Mississippi are subject to state taxes. These taxes fall into three basic types and are levied by the state.
Corporate Income Tax
In Mississippi, corporate income is subject to a state income tax. This tax is levied in §27-7-5 of the Mississippi Code. Unless a company is taxable in another state, this tax is based on the company's net taxable income.
Income tax for multi-state corporations is calculated by determining a Mississippi to total company ratio that is applied to the net business income for the corporation. For retailers, wholesalers, service providers, and many other business operations, income is apportioned based on a ratio of sales in Mississippi versus sales for the total entity.
When calculating a wholesale manufacturing operation's apportionment ratio, an average three-factor formula is used, consisting of:
- Ratio of property (book value) in Mississippi versus total property
- Ratio of payroll in Mississippi compared to total payroll
- Ratio of sales attributable to Mississippi compared to total sales.
Retail manufacturing operations are subject to a weighted two-factor formula consisting of:
- Ratio of property (book value) in Mississippi versus total property
- Ratio of payroll in Mississippi compared to total payroll
The result is then averaged with a sales factor
- Ratio of property and payroll in Mississippi versus total property and payroll
- Ratio of sales in Mississippi versus total sales.
After the apportioned net taxable income is calculated, additional non-business income attributable to Mississippi is added to the calculated amount to arrive at the Mississippi net taxable income.
Mississippi Income Tax rates are:
- First $5,000 of taxable income 3%
- Next $5,000 of taxable income 4%
- Remaining taxable income 5%
Other pertinent Mississippi corporate income tax facts:
- Mississippi allows a net operating loss to be carried back two years and forward for twenty years following the taxable year of such loss.
- Mississippi statutes do not allow deductions of federal income taxes.
- There are no county or municipal income tax levies in Mississippi.
Corporate Income Tax Example (Multi-State Operation)
Assume the following facts:
- Company is a wholesale manufacturer with two plants; one in Mississippi, and one in another state.
- The Mississippi plant accounts for 45% of the property.
- The Mississippi plant accounts for 35% of the sales.
- The Mississippi plant accounts for 40% of the payroll.
- The company's net business income is $500,000.
The corporate income subject to Mississippi tax and the amount of tax payable would be calculated as follows:
| Mississippi property to Total property Ratio |
.45 |
| Mississippi payroll to Total payroll Ratio |
| Mississippi sales to Total sales Ratio |
.35 |
| Sum of Ratios |
1.20 |
| Apportionment Ratio: (1.20 / 3) |
.40 |
| Mississippi Apportioned Taxable Income ($500,000 x .40) |
$200,000 |
| Total Mississippi Tax: |
|
| 3% of first $5000 |
$ 150 |
| 4% of next $5000 |
$ 200 |
| 5% of remainder ($190,000) |
$ 9,500 |
| Income tax payable to Mississippi |
$ 9,850 |
A number of corporate income tax credits are available in Mississippi. Listings of the more commonly used credits are briefly described here, but there are also some industry specific incentives that may also be applicable.
Corporate Franchise Tax
Most corporations engaged in business in Mississippi are subject to franchise tax, as levied in §27-13-5 and §27-13-7 of the Mississippi Code. Franchise tax is a tax that is assessed on the company's capital value. The capital value for the corporation is calculated based on:
- Capital stock issued and outstanding
- Paid-in Capital, Surplus, and Retained Earnings, including deferred taxes, deferred gains, deferred income, contingent liabilities, and other true reserves.
If a corporation's assessed value of real and tangible property in Mississippi is greater than the capital value, the assessed value is used as the Mississippi capital value.
For multi-state corporations, capital is pro-rated based on the following formula:
Book value of MS real and tangible personal property + MS Gross Receipts
divided by
Book value of total real and tangible personal property + total Gross Receipts
This ratio is then applied to the corporation's total capital value to calculate the amount of capital to be apportioned to Mississippi. The apportioned capital is then multiplied by the franchise tax rate to determine the Mississippi franchise tax liability. This franchise tax rate is $2.50 per $1,000 of Mississippi capital.
Corporate Franchise Tax Example (Multi-State Operation)
Assume the following facts:
- The company owns $2,400,000 of real and tangible personal property (book value.)
- $1,080,000 real and tangible personal property is located in Mississippi.
- Total corporate receipts are $4,800,000.
- Mississippi receipts are $1,900,000.
- The total capital stock, surplus and undivided profits, and true reserves for the corporation amount to $2,000,000.
The capital value subject to Mississippi franchise tax and the amount of tax payable would be calculated as follows:
| Book value of Mississippi property |
$1,080,000 |
| Mississippi gross receipts |
$1,900,000 |
| (Formula numerator) |
$2,980,000 |
| Book value of total corporate property |
$2,400,000 |
| Total corporate gross receipts |
$4,800,000 |
| (Formula denominator) |
$7,200,000 |
| Franchise tax apportionment ratio (2,980,000 / 7,200,000) |
.414 |
| Capital apportioned to Mississippi ($2,000,000 x .414) |
$ 828,000 |
| Mississippi Franchise Tax ($828,000 / $1000) x $2.50 |
$ 2,070 |
Corporate Franchise Tax Incentives Available
Growth and Prosperity Program (GAP)(§57-80-9)
A GAP designation may be awarded to eligible businesses in specific geographic areas of the State that exempts the business from franchise tax for up to ten years.
Other Franchise Tax Credits
Additionally, credits that are more industry specific exist, such as the In-Lieu Fee for Major Economic Projects, and the Broadband Technology Tax. Contact the Mississippi Development Authority for more information.
Sales and Use Tax
All tangible personal property sold within the state is considered taxable unless specifically exempted or assigned a reduced rate by state law, as defined in §27-65-17 of the Mississippi Code. Similarly, companies doing business in Mississippi that bring tangible personal property into Mississippi are required to pay use tax on that property.
Some services are also subject to sales tax in Mississippi, as listed in §27-65-23 of the Mississippi Code. Examples of taxable services are:
- Software sales and service
- Repairs of tangible personal property
- Renting or leasing tangible personal property
The regular retail sales and use tax rate is 7%, but the law does allow for a reduced rate for manufacturing machinery, equipment, and industrial purposes of 1.5%. Sales tax on automobiles in Mississippi is 5%, with truck-tractors and semi-trailers taxed at 3%. Sand and Gravel is taxable at retail, unless purchased by a wholesaler or contractor, at which time the product is taxed at 5 cents per ton.
In instances where a business may be subject to the manufacturing rate, the Mississippi State Tax Commission requires that the business apply for a direct pay permit. This permit allows the permit holder to purchase goods exempt from sales tax and pay the use tax directly to the state on the company's use tax return. This allows the company to apply the correct rate to purchases based on the usage of the product. Temporary direct pay permits are also issued to businesses that have qualified for sales and use tax incentives.
For commercial construction of real property, there is a 3.5% contractor's tax that is assessed to the contractor on the gross receipts of the project, as levied in §27-65-21 of the Mississippi Code. The contractor is allowed to purchase his component building materials exempt from sales tax, but these purchases are included in the gross receipts subject to contractor's tax. (While this will not be shown as a separate line item on contract invoices, the contractor's tax on these purchases will be built into the total contract amount.) Any items included in the contract that are subject to contractor's tax are not subject to sales or use tax.
In instances where a turnkey contract is preferred, the contractor's tax will apply to all items that become part of the real property being constructed (either 3.5% or 1.5%.) For personal property, the contractor may apply to the State Tax Commission for a job specific direct pay permit that allows the contractor to purchase freestanding tangible personal property exempt from sales tax. The contractor will then sell these items to the business entity exempt from sales tax due to the business's direct pay permit. However, the business will still owe the sales or use tax based on the equipment being purchased. This equipment will be subject to the same sales tax rate that would have applied if purchased directly (either 1.5% or 7%.)
Mississippi sales tax must be charged and collected as follows:
- Sales of tangible personal property to the final consumer 7%
- Sales to a manufacturer that has a direct pay permit 0%
- Sales to a wholesaler, out-of-state party, or a retailer with
a resale permit for items purchased for resale 0%
- Sales to exempt customers with an Exemption Letter 0%
- Commercial Construction 3.5%
Manufacturer's tax liability is slightly more complex. The manufacturer is liable for tax on purchases at the following rates:
- Raw materials 0%
- Catalysts, chemicals, and gases used directly in the process 0%
- Packaging, containers, and pallets that are sold with the finished goods. 0%
- Pollution control equipment, if qualified 0%
- Machinery and parts used in the manufacturing process 1.5%
- Industrial electricity, gas, and fuels 1.5%
- Fuel used in the production of electric power for sale 0%
- Industrial water 7%
- Telephone services 7%
- Equipment, furniture, supplies, rentals, and machinery not used directly in the manufacturing process 7%
Actual state tax requirements vary widely depending upon corporate structure and activities, but the following information is provided as a broad guideline to identify existing tax levies. Incentives are available to reduce tax liabilities. All tax incentives and credits are subject to approval by the Mississippi State Tax Commission. In Hinds County, local tax abatements are dependent on the economic impact of the project applying for abatements.
OTHER TAXES
Withholding of Personal Income Tax
Mississippi levies a tax on individual income in the state, as required in §27-7-5 of the Mississippi Code. Income tax is assessed at the same rate for individuals as it is for business entities. Employers are statutorily required to withhold Mississippi personal income tax from its employees and remit these withholdings directly to the Mississippi State Tax Commission. This tax is a deduction from the employee's wages, and does not require a contribution from the employer. Specific registration, withholding, and filing requirements can be obtained from the Mississippi State Tax Commission.
State Unemployment Compensation Tax
Mississippi levies an unemployment compensation tax on the first $7,000 of an employee's annual wages, as provided for in Mississippi Code §71-5-1 et seq. The maximum contribution rate for employers is 5.4%, with the minimum rate equaling 0.9%. Both the state minimum rate and the business's rate vary from year to year. New employers in the state are assigned an initial rate of 2.7% of wages until the Mississippi Department of Employment Security can compute an actual experience rate for the employer. Rates are recalculated each October and apply to the following year's wages. Rates are adjusted after two to three years of Mississippi filings, depending upon what time of year the employer begins reporting.
Worker's Compensation
Mississippi employers with five or more employees are required to purchase worker's compensation coverage through an insurance carrier, or they must qualify with the Mississippi Worker's Compensation Commission as a self-insurer.
The compensation is about two-thirds of the claimant's average weekly wages for up to 450 weeks, not including medical payments. These amounts are indexed on an annual basis.
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