Within a 24-hour period, the Mississippi House of Representatives introduced and passed a bill to repeal the individual income tax, but at a cost of massive increases in sales taxes imposed on business inputs. H.B. 1439 would phase out the individual income tax by gradually increasing the personal exemption over an undefined period of time based on a complex formula taking into account general fund revenue growth, but would leave the corporate income tax in place. If passed, any business income generated by pass-through entities such as partnerships and LLCs, as well as trusts and estates, would be exempt. The bill also would gradually reduce the sales tax on groceries from the current 7% to 3.5%, which may be the only favorable sales tax change in the bill.

The net cost to Mississippi businesses could be huge. The regular retail sales tax rate applicable to ordinary purchases of business-related goods, services, telecommunications services, and utilities would increase from 7% to 9.5%, placing Mississippi among the highest standard rates in the country. Manufacturers currently pay a 1.5% sales tax on manufacturing equipment and repairs and this bill would increase that by more than 160% to a 4% rate. Identical increases would apply to farm and timber industry implements, equipment, and repairs, as well as technology-intensive enterprises. The dairy industry also will be hit hard, rising from 3.5% to 6%. Sales taxes on vehicles including aircraft, trucks, and semitrailers would increase from 3% to 5.5%. Rates applicable to sales to electric power associations would increase 250%, from the current 1% rate to 3.5%, an upstream cost that will likely be passed on to consumers, including business customers, in the form of higher rates. Continue reading >