The Mississippi Legislature recently approved Senate Bill 2858 (SB 2858), the "Taxpayer Pay Raise Act of 2016," which would phase-out the Mississippi Franchise Tax and reduce the income tax rates for individuals, corporations, trusts and estates. SB 2858 was sent to Governor Phil Bryant for signature, who is expected to sign the measure sometime between now and May 13, 2016.

SB 2858 would phase out the Mississippi Franchise Tax over 10 years starting in 2018. Currently, the tax applies to corporations and is imposed at a rate of $2.50 for each $1,000 of the value of a corporation's capital used, invested or employed within Mississippi. In 2018, the franchise tax rate would be reduced by $0.25 per year until it is eliminated for tax years after 2028. Provisions of SB 2858 also would exempt, starting in 2018, the first $100,000 of the value of capital used, invested or employed in Mississippi from the franchise tax.

SB 2858 also would reduce the income tax rates applicable to individuals, corporations, trusts and estates. Under current law, the first $5,000 of taxable income is taxed at 3%, the next $5,000 of taxable income is taxed at 4% and all taxable income over $10,000 is taxed at 5%. SB 2858 would gradually reduce income tax rates between 2018 and 2022 to 0% on the first $5,000 of income, to 4% on income greater than $5,000 and up to $10,000, and to 5% on all income in excess of $10,000.

Implications

If Governor Bryant signs SB 2858 into law, companies filing Mississippi corporate income tax and franchise tax returns should consider the effects these changes will have on their state and local tax provisions in the quarter including the enactment date.

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