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Tax Foundation, Department of Revenue pitch options for change in state tax policy

JACKSON, MISS– Nicole Kaeding, economist with the State Tax Policy Division of the Tax Foundation and Mississippi Department of Revenue Commissioner Herb Frierson met with the legislative tax policy panel Tuesday to discuss recommendations for tax policy reform. 

Currently, Mississippi ranks 28th overall on the State Business Tax Climate Index by the Tax Foundation.

Kaeding suggested various reform options that could improve the state’s ranking with the Tax Foundation from 28th to either 16th, 15th, or 11th, depending on the intensity of the reforms lawmakers choose to pursue.

The focus was on speeding up the phase-out of the corporate franchise tax.

“12 years is too long to wait,” said Kaeding. “Three or five years is a better option for the panel to explore.”

Kaeding also suggested expanding the base of what is taxed, while eliminating taxes on business inputs. She defined a “business input” as a cost of production before the final product.

For example, a veterinarian would not be taxed on the equipment he buys on his practice, but you would be taxed for taking Fido for his yearly exam. Currently, many services in Mississippi are not taxed, veterinary services included.

Kaeding cited Indiana as a model for the tax reforms Mississippi lawmakers should pursue.

“Indiana is a manufacturing state,” said Kaeding. “and they worked hard to reform their tax and fiscal policies… they are an example of what strong reforms can do.”

Indiana is currently ranked 8th for overall tax structure in the U.S. by the Tax Foundation.

Commissioner Frierson made other suggestions to the panel, including a one percent tax rate increase on items related to tourism or disposable dollars, such as hotels, rental cars, and prepared foods.

“That would bring in about $45 million,” said Frierson.

One suggestion made by Frierson and by Kaeding was nixing the Sales Tax Holidays.

“I know they’re popular, politically,” said Frierson. “But the numbers show they do not do anything for growth.”

Evidence from across the United States shows the holidays do not provide long term relief, and that many stores actually raise prices on those days to account for paying the extra employees needed for the rush. Elimination of the Sales Tax Holiday could help to the tune of $7.5 million.

Sales tax revenue, according to Frierson, accounts for roughly 38 percent of the General Fund.

 

 

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