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Tax policy panel: Suggestions made to change sales tax, increase taxed services

JACKSON, MISS– The Tax Policy Panel met with a representative from the Tax Foundation Monday to discuss what legislators could do to improve the tax structure in Mississippi. 

Mississippi recently ranked 28th in the nation for the State Tax Business Climate study by the Tax Foundation. While no changes were made, that stagnation caused the state to drop from 26th, as other states made improvements.

Economist Nicole Kaeding with the Center for State Tax Policy made suggestions regarding corporate tax and sales tax structure reform in the state (read her suggestions on corporate tax structure here).

While Mississippi ranked middle of the road in the study overall, the largest factor pulling the ranking down was the structure of the sales tax code, which landed at 38th in the nation.

“The sales tax ranking was low for two broad reasons,” said Kaeding. “Seven percent sales tax is the second-highest in the country, and you have a poor sales tax structure.”

Kaeding named six different areas of the sales tax structure that need improvement:

  • Business-to-business interaction
  • Final consumer goods and services
  • Inclusion of services
  • Sales Tax Holidays
  • Business fuel
  • Business leasing

The business-to-business interaction tax rates are often lower than general sales tax rates, but Kaeding said that the purchases between businesses for business related items should not be imposed.

“If a farmer is buying a piece of equipment,” said Kaeding, “sure, he’s getting a discounted tax rate, but that expense is still getting passed down to the consumer. Ideally, there would be an exemption there.”

Kaeding added that by imposing this tax on businesses, out-of-state industries see this as adding complexity to their accounting, and may look elsewhere for expansion and costs the consumer more.

“Corporations don’t have wealth. They pass the tax onto the consumer,” Kaeding said. “Taxes aren’t paid by corporations, they’re paid by individual employees, consumers, and shareholders.”

A vast majority of the presentation to the panel included Kaeding’s recommendations regarding the final goods and services purchases made by consumers.

“You have a high sales tax,” said Kaeding, “but you’re not taxing enough items. You need to expand the base of what is taxed.”

Kaeding said the following services are not currently taxed, but should be considered in the future to improve the state tax code ranking and boost revenue:

  • Gasoline
  • Prescription Medicines
  • Legal
  • Financial
  • Accounting
  • Medical
  • Fitness
  • Barbers
  • Veterinary

“While it may seem difficult to pay sales tax on things you didn’t before,” said Kaeding. “it’s a positive step in moving the state forward, particularly if you’re using that revenue from taxing new things to eliminating that franchise tax…. that means faster economic growth, and more jobs for people here in Mississippi.”

The celebrated Sales Tax Holidays, celebrated by only 17 states, has not had an impact on the growth of the state’s economy, said Kaeding.

“Sure, there’s no tax on clothing below $100, or on firearms, ammunition, or hunting supplies on those days,” said Kaeding. “But that’s not been shown to have an effect on the economy. It isn’t a booster. It just teaches the consumer to shop on a different day.”

With all of the recommendations Kaeding made, the state’s ranking could improve from 28th in the nation to 12th. But not all of these recommendations could be taken at one time, as Kaeding realized.

“I don’t have constituents here,” Kaeding said. “and I don’t have voters in this state.”

The path moving forward could go in three directions: revenue-increasing, revenue-decreasing, and revenue-neutral. Whichever path lawmakers decided would determine the rate of which these recommendations were followed.  Within the panel, the lawmakers were split on which path to take.

“We should reduce, give more to the people,” said Rep. Mark Formby. “Then begin to see if we are over-providing services.”

Representative Mark Baker suggested a more revenue-neutral stance.

“We should make an investment in the Department of Revenue,” said Baker. “to collect what we should be but we’re not.”

Senator Dean Kirby pointed out the benefits of a revenue-neutral approach over the long term.

“When you look at a revenue-neutral package, it generates greater revenue over time,” said Kirby. “The first year is neutral, but the increase is seen over the next three years.”

Others turned their attention to the fact that Mississippi has one of the highest poverty rates in the country.

“Tax reform in this state should benefit education, roads, and bridges,” said Rep. Sonya Williams-Barnes. “and not pass this burden to the citizens.”

Either way, Kaeding said a solution won’t be reached overnight.

“Tax code reforms won’t immediately solve economic growth, but it is a huge part of it,” said Kaeding. “but states that have been the most successful in tax reform have set out clear goals.”

 

 

 

 

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