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Tax committee eyes state tax structure, suggestions for reform

JACKSON, MISS– Members of the legislative tax policy panel discussed options for restructuring the state’s tax code on Monday. 

Leading the discussion was Nicole Kaeding, an economist for the Center for State Tax Policy with the Tax Foundation.

The Tax Foundation’s most recent study, released last week, showed Mississippi at 28th in the nation for its tax code structure. While Mississippi’s tax code did not change during the period of the study, the ranking fell two points as other states made changes. There were areas of the study in which the Magnolia State flourished, but others that brought the score down.

Mississippi ranked as follows:

12th on corporate tax
20th on individual tax
38th on sales tax
5th on unemployment insurance
35th on property tax
Kaeding suggested several ways to improve that ranking to the policy panel during the presentation.

“The first step was taken this last legislative session with repealing the franchise tax over that phase out,” said Kaeding. “But I think what really should be done is accelerate that phase out. Waiting 12 years to phase out a detrimental tax on capital is too long for Mississippi.”

Overall, Mississippi’s tax climate is middle-of-the-road compared to most states, but ranked much better than the nearby states of Louisiana (41), Alabama (32), and Georgia (36).

The Taxpayer Pay Raise Act, which became law on July 1st, was not factored into the study because it was not enacted by the study’s deadline, but it is expected to improve Mississippi’s rankings. The three percent individual and corporate income tax bracket will be phased out, as well as the franchise tax.

While businesses fare well in taxes in the state as far as rates are concerned, the bracketing and indexation of these rates is what causes businesses look away from Mississippi in the end.

“You’re creating room for more complexity and these businesses have to have standard practices across the multiple states,” Kaeding said.

One of the ways Mississippi tries to attract businesses is through jobs and investments credits, which Kaeding said does not do much.

“It may attract businesses, but it isn’t encouraging more jobs or economic growth. It just adds complexity to the code.” Kaeding said.

Kaeding said that by having more tax requirements that other states, Mississippi is not able to compete with states that may require less in the way of filings.

“By the far the largest sources of revenue loss,” Kaeding said. “Is the  disproportionate amount of time spent on income tax rules versus the revenue generated.”

Another boost Kaeding suggested would eliminate the tax on business-to-business transactions.

“You already charge a reduced rate, for example, a one-point-five percent sales tax on a farmer purchasing farm equipment,” said Kaeding, “Ideally, you wouldn’t impose a tax there, because those costs only get handed down to the consumer. It costs more for the production, therefore it costs more to purchase.”
Kaeding said providing these cuts for corporations helps the consumer overall.

“These corporations don’t pay their taxes,” said Kaeding. “You do. They take those expenses, added to the costs of their product, then take what you give and put that toward the taxes.”

While the tax policy panel does intend to meet again, reforms suggested are ultimately left up to the legislature, which is set to convene again in January.

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