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MISSISSIPPI: An Introduction to Corporate/Commercial

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Mississippi continues to provide an environment that is conducive to the expansion of existing and new businesses, including: (i) a stable state and local tax structure including relatively low income and franchise taxes; (ii) a variety of state and local economic development incentives; (iii) a quality workforce with a strong work ethic coupled with balanced labor and employment laws; (iv) a solid and expanding rail and highway transportation infrastructure; (v) a south central-US location with several well-established ports along the Mississippi River and Tennessee-Tombigbee River Waterways and two deep water ports located on the Gulf of Mexico; and (vi) a balanced legal system vastly improved since the passage of major tort reforms almost two decades ago.

ECONOMIC DEVELOPMENT INCENTIVES 

Mississippi offers a variety of economic development incentives. Some are statutory and others discretionary. Some require annual reporting of project performance measures, while others do not. At the State level, most incentives are administered by the Mississippi Development Authority (MDA), while local incentives are granted by counties and cities in coordination with economic development authorities and regional planning and development districts.

For mega-projects, the State offers incentives through the Mississippi Major Economic Impact Act (MMEIA), which typically involves special legislation authorizing the issuance of general obligation bonds to fund project support and to make available a variety of special tax and other incentives. Such projects also qualify for a fee-in-lieu property tax incentive granted by local authorities.

For more typical economic development projects, Mississippi offers a variety of incentives. Property tax incentives are discretionarily granted by the local authorities, which levy ad valorem taxes. For projects with a capital investment over $60 million, the company and local authorities may enter into a fee-in-lieu agreement (similar to PILOT in other jurisdictions) which may abate up to 2/3 of all real and personal ad valorem taxes, both school and non-school. A FIL may also be granted to certain health care facilities certified by MDA. For smaller projects, exemptions may be granted by local authorities to exempt all local taxes except school taxes. Finally, for certain renewable energy projects over $100 million, an additional 50% ad valorem tax exemption may be granted by a county.

In its 2022 legislative session, the Mississippi legislature passed the Mississippi Flexible Tax Incentive Act (MFLEX). MFLEX applies to projects certified by MDA based upon the company’s estimates of investment, full-time job creation and wages as compared to the state or county average. Credits are generated based upon the company meeting performance measures as reported annually to MDA. MFLEX credits are issued at the taxpayer level and can be applied to any state tax liability - sales tax, income and franchise taxes, and a portion of withholding tax deducted from employees’ wages. MFLEX is designed to provide a single vehicle to generate tax benefits in lieu of the variety of current incentive programs. However, any company desiring to utilize those existing programs may do so rather than using the new MFLEX program.

Existing programs include the utilization of bonds issued through the Mississippi Business Finance Corporation (MBFC) which can provide: certain tax incentives: avoidance of contractor’s tax using structured purchasing procedures and sales/use tax exemptions for project purchases using bond proceeds; a bond amortization income tax credit; and, with municipal and county approval, abatement of a portion of property taxes on the project. In addition, there are a number of existing incentives which may be utilized instead of MFLEX to provide income, sales and franchise tax incentives as well as withholding tax rebates. Companies with projects having specific attributes, such as a high capital investment but relatively few jobs, and companies who do not wish to assume the annual reporting required by MFLEX may choose to use existing incentives.

MDA administers the Community Development Block Grant Program (CDBG) to fund publicly owned infrastructure to aid with the construction, renovation or expansion of businesses and industrial facilities.

Mississippi cities and counties may issue tax increment financing (TIF) bonds to encourage development within designated areas by financing public infrastructure improvements for public or private projects without issuing general obligation bonds. Private developers may also utilize a special public improvement district (PID) to finance various public infrastructure improvements that are repaid with tax assessments levied on real property within the PID.

LABOR AND EMPLOYMENT LAWS 

Mississippi is both a right-to-work state, meaning that labor union membership cannot be required, and an at-will employment state, which means that employers may discharge for any reason as long as it does not violate federal law or an existing employment contract for a specific duration. A few narrow exceptions exist to this rule, including terminating an employee for refusing to engage in illegal activity or for reporting illegal activity. Mississippi law also holds that an employer’s handbook can create an implied contract for employment under certain rare circumstances, but an express disclaimer usually defeats such implied contracts.

CORPORATE INCOME AND FRANCHISE TAXES 

The Mississippi Corporate Income Tax applies to the entire annual net income of a corporation if its business activity occurs only in Mississippi. The income of a multistate corporation operating in Mississippi is allocated or apportioned to Mississippi for income tax purposes depending upon where the production of income takes place and whether it is classified as either business or non-business.

The “business income” of a multistate corporation consists of (1) income arising from activities or transactions in the ordinary course of the taxpayer’s trade or business (the “transactional test”); and (2) income from the acquisition, management and/or disposition of tangible or intangible property provided such acquisition, management and/or disposition constitutes an integral part of the taxpayer’s regular trade or business operations (the “functional test”).

A multistate corporation with business income must use applicable apportionment formulas to determine the portion of its business income that is subject to Mississippi income tax. Recent statutory changes limit the ability of the Department of Revenue to utilize arbitrary alternative apportionment methods. The non-business income of a multistate corporation is generally allocated to the state where the income is earned.

Mississippi excludes from taxation any gain resulting from the sale by a Mississippi resident individual or an entity domiciled in Mississippi of equity interests in domestic corporations, limited partnerships (except limited liability partnerships) or limited liability companies if those interests have been held for more than one year. The exclusion equates to a net, after-tax incentive equal to almost five percent of the taxable gain based on existing tax rates. Transactions structured as asset sales no longer qualify for the gain exclusion.

The Mississippi Corporate Franchise Tax is an excise tax on the privilege of doing business in Mississippi in corporate form. This is imposed on all corporations and associations, joint-stock companies and partnerships that are treated as corporations for tax purposes. Organizations exempt from this tax include mutual savings banks, many nonprofits, and business and civic leagues.

In 2016, a law was enacted that will gradually reduce and eventually repeal Mississippi’s franchise tax over an 11-year period. In 2017, the franchise tax was computed as it always had been calculated, at the rate of $2.50 for each $1,000 of the value of the taxable capital of the corporation. Taxable capital is measured by the sum of the corporation’s outstanding stock, paid-in capital, retained earnings and surplus plus deferred charges and income and reserves for contingencies. Reserves for bad debts, accumulated depreciation, debts or other known obligations are excluded from taxable capital. In addition, where a corporation qualifies as a true “holding company,” its taxable capital does not include that of its subsidiaries. A multistate corporation operating in Mississippi must apportion taxable capital between the states in which it operates using a two-factor formula consisting of the real and tangible personal property ratio and the gross receipts ratio.

In 2018, the first $100,000 in capital was immediately exempted from the tax, which will have the effect of exempting many small corporate taxpayers in that year and thereafter. Beginning in 2019, the franchise tax rate will be reduced by $0.25 per year until it is eliminated with respect to tax years beginning on or after January 1, 2028.

LEGAL SYSTEM 

Since Mississippi enacted significant rounds of tort reform starting almost twenty years ago, the limits on both non-economic and punitive damages along with more favorable venue provisions to defendants has changed the legal landscape. In February of 2013, the Fifth Circuit Court of Appeals upheld the State’s $1 million cap on non-economic damages. This decision, along with others, continues the multi-year trend of decreasing litigation, particularly mass torts, while enhancing Mississippi’s business and legal environment. Most recently, during its 2019 regular session, the State Legislature adopted the Landowners Protection Act (LPA), which became effective on July 1, 2019. See Miss. Code Ann. § 11-1-66.1 (2020). The Act codifies the essential elements of a tort claim and addresses what evidentiary proof may be considered when determining if a landowner (or property manager) may be found civilly liable for the criminal acts of third parties that injure individuals who are lawfully on the subject property. The Act also amends Miss. Code Ann. § 85-5-7 (2020) and permits a jury in such actions to allocate fault to those intentional tortfeasors who commit an act with a specific wrongful intent (such as criminal assailants).