The Mississippi House of Representatives had one item on Thursday’s calendar – a bill to eventually eliminate the state’s income tax and slash its grocery tax – and after over an hour of debate, enough lawmakers came together to easily approve the package and send it to the Senate.
Intentionally filed as House Bill 1, the “Build Up Mississippi Act” passed on an 88-24 vote as some Democrats in the GOP-controlled chamber stepped across the aisle to ensure the bill had enough support. The legislation would net an estimated $1 billion tax cut by phasing out the income tax in just over a decade and significantly cutting the nation’s highest tax on groceries over a slightly shorter time span.
“This is a bill that has been a long time coming,” House Ways and Means Committee Chairman Trey Lamar said, noting his work on eliminating the income tax began in 2016. “We’re finally at a place where we can tell the hardworking people of Mississippi that we’re going to eliminate the income tax for you, your children, your grandchildren, and all future generations. It’s an honor to present this bill to the body.”
As Lamar fielded questions over whether the package would sink the state’s budget and why lawmakers should cut taxes when public universities and community colleges are still in need of further funding, the Republican from Senatobia stood strong in his belief that state revenue would not go backward. He added that a plan is set in place if the tax cut were to result in a budget shortfall, as seen in Kansas when lawmakers decided to eliminate income tax there and were forced to backtrack on their decision.
“We’ve got a rainy-day fund currently of around $700 million,” Lamar said. “We also added the new budget stabilization fund with $200 million that can only be accessed if needed.”
The Build Up Mississippi Act would maintain a major reduction in income tax that was passed by the legislature and signed by Republican Gov. Tate Reeves three years ago before dropping the top rate to 3% in 2027, and by 2037, there would be no tax on work. This would join Mississippi with nearby states such as Texas, Tennessee, and Florida as those who have ditched income tax.
Surviving two proposed amendments, both of which were from Democratic Rep. Omeria Scott and one of which was to cut the tax on groceries immediately, the bill as passed would reduce the 7% fee levied by the state on groceries to 4.5% in 2026 before landing at 2.5% in 2036. Tax on groceries, which are not currently separate from the state’s 7% retail rate of sales tax, is the highest in the U.S. as only 13 states tax groceries.
To account for funds currently being accrued through taxes by local governments, an automatic 1.5% bump would be placed on the standard sales tax. That means the tax on groceries would technically be dropped to 4% when the phase-out is complete while the sales tax on non-grocery items would immediately jump to 8.5%. Local boards of aldermen and city councils would have the option to forego the increase, but voting to do so would result in the loss of benefits funded by the additional 1.5%.
As Lamar pointed out when presenting the bill, neighboring states such as Alabama (9.29%), Arkansas (9.45%), Louisiana (9.56%), and Tennessee (9.55%) would still have a higher sales tax than Mississippi.
Reduction of income tax under HB 1
| 2024 | 4.7% |
| 2025 | 4.4% |
| 2026 | 4% |
| 2027 | 3% |
| 2028 | 2.7% |
| 2029 | 2.4% |
| 2030 | 2.1% |
| 2031 | 1.8% |
| 2032 | 1.5% |
| 2033 | 1.2% |
| 2034 | 0.9% |
| 2035 | 0.6% |
| 2036 | 0.3% |
| 2037 | 0.0% |
Reduction of grocery tax under HB 1
| July 1, 2026 – June 30, 2027 | 4.5% (6% with no opt-out) |
| July 1, 2027 – June 30, 2028 | 4.3% (5.8% with no opt-out) |
| July 1, 2028 – June 30, 2029 | 4.1% (5.6% with no opt-out) |
| July 1, 2029 – June 30, 2030 | 3.9% (5.4% with no opt-out) |
| July 1, 2030 – June 30, 2031 | 3.7% (5.2% with no opt-out) |
| July 1, 2031 – June 30, 2032 | 3.5% (5% with no opt-out) |
| July 1, 2032 – June 30, 2033 | 3.3% (4.8% with no opt-out) |
| July 1, 2033 – June 30, 2034 | 3.1% (4.6% with no opt-out) |
| July 1, 2034 – June 30, 2035 | 2.9% (4.4% with no opt-out) |
| July 1, 2035 – June 30, 2025 | 2.7% (4.2% with no opt-out) |
| Beginning July 1, 2036, and onward | 2.5% (4% with no opt-out) |
The wide-net legislation is also cast to address the financial stability of the public employees’ retirement system, something lawmakers and experts have continuously asserted is a $25 billion liability. Beginning in 2026, annual proceeds of $100 million from the state’s lottery would be shifted from the Mississippi Department of Transportation to PERS until the system’s long-term liabilities are funded at 80%. The remainder of the lottery funds would be split between early education along with port and railway infrastructure.
To compensate the Mississippi Department of Transportation for losing its stream of funds for roadway construction and improvements from the lottery, the legislation would alter the tax code to implement a 5% sales tax at the fueling pump. Currently, 18.4 cents per gallon is collected as an excise tax on every gallon of gas sold, but there is no tax for the consumer at the time of sale.
The Build Up Mississippi Act will now head to the Senate, where Lt. Gov. Delbert Hosemann has confirmed he is in favor of modest cuts. With a bit of convincing, Lamar and company are hopeful their cross-chamber counterparts will come around to the House package.
“We’re going to encourage our friends on the other end of the hall to give a serious look at it,” he said.
