2011 Mississippi Tax Update
July 15, 2011
Mark M. Hosemann
Brunini, Grantham, Grower & Hewes, PLLC
Jackson, Mississippi
Income and Franchise
Tax
Legislative Developments
• Human Pharmaceutical Products Contributions.
S.B. 3097, Reg. Sess. (Miss. 2011).
– For a charitable contribution by a “major supplier” of
human pharmaceutical products in excess of $250
million, the federal charitable contribution limitation
will be imposed, but MS income can not be reduced
below zero
– Major Supplier- $100M of pharmaceutical products
shipped into MS and receiving funding from the MS
Industry Incentive Financing Revolving Fund
• Human Pharmaceutical Products
Contributions. S.B. 3097, Reg. Sess.
(Miss. 2011).
– Also provides that for multi-state corporations
that are major suppliers, receipts from sales
of human pharmaceuticals to MS distribution
facilities will not be included in MS receipts for
the franchise tax apportionment ratio
calculation
• Rural Economic Development Credit. S.B.
2921, Reg. Sess. (Miss. 2011).
– Reenacts the MS Rural Economic
Development Assistance Program (RED) and
the income tax credits associated therewith
– Extended through October 1, 2015
• Mississippi Motion Picture Incentives Act. H.B.
1161, Reg. Sess. (Miss. 2011).
– A motion picture production company that expends at
least $50,000 in base investment, payroll, or both is
entitled to a rebate of 25% of the base investment.
– In addition, a payroll rebate for 30% of the payroll
paid to resident employees whose wages are subject
to Mississippi withholding was approved, and a
payroll rebate for 25% of the payroll paid to
nonresident employees is available pending final
approval on July 1, 2014 at the earliest.
• Historic Structure Rehabilitation Tax Credit. H.B. 754 &
H.B. 1311, 2011 Reg. Sess. (Miss. 2011).
– Extends existing credit to December 31, 2013
– If the income tax credit allowed for the costs incurred
in the rehabilitation of certified historic structures
exceed the taxpayer’s tax liability for the year and the
amount of the tax credit exceeds $250,000, the
taxpayer may elect to claim a refund in the amount of
75% of the excess credit in lieu of the ten-year
carryforward of the credit. The election must be made
in the year in which the rehabilitated property is
placed in service. Refunds will be paid in equal
installments over a two-year period. The law also
limits the aggregate amount of credits that may be
awarded to $60,000,000.
• Cargo Income Tax Credit Extended. S.B.
2922, 2011 Reg. Sess. (Miss. 2011).
– Removes the repealer on the income tax
credit for port charges for cargo imported into
the state. The credit for export charges was
extended in 2010 through 2012.
• Early Payment of Withholding Tax. H.B.
1059, 2010 Reg. Sess. (Miss. 2010).
– Delays until July 1, 2012 an increase in the
amount of average monthly withholding
liability that triggers the requirement for early
payment of withholding tax liability by certain
taxpayers
• Increases threshold to $50,000 from $20,000
• Tax Return Confidentiality. H.B. 704, 2010
Reg. Sess. (Miss. 2010).
– Tax return information must be maintained in
confidential manner unless disclosure is
required by a court order
– DOR can release income tax information to
Dept. of Human Services for individuals who
are delinquent on child support
• DOR confidentiality of information. 2010
S.B. 3082, Reg. Sess. (Miss. 2010).
– Authorizes the DOR to enter into
confidentiality agreements with officers and
employees of the Mississippi Development
Authority. Such officers and employees
would be subject to the same restrictions on
the release of taxpayer information that apply
to the DOR.
• Conversion of Traditional IRA. H.B. 1637,
Reg. Sess. (Miss. 2010).
– Excludes income amounts converted from a
traditional IRS to a Roth IRA from the
definition of “gross income”
– Exclusion is also available to a spouse or
other beneficiary at the death of the primary
retiree
• Derivative Tax Liability. S.B. 2967, Reg.
Sess. (Miss. 2010).
– Liability of certain owners or members of
corporations or LLCs for income withholding
tax and sales tax is derivative of the entity
– The 3-year assessment period for the
derivative liability doesn’t begin to run until the
entity’s liability becomes final
• Individual Income Tax Payable in
Installments. S.B. 2753, Reg. Sess. (Miss.
2010).
– If state income tax liability is not in excess of
$3000 and the taxpayer has entered into an
installment agreement with the IRS for federal
taxes, state income taxes can be paid in
installments over no more than 60 months
• Tax Return Preparer Penalty. H.B. 1462,
Reg. Sess. (Miss. 2010).
– Mandatory penalty for grossly negligent
preparation of an income tax return is now
discretionary
– Commissioner of DOR assess these penalties
and handles collections just as with the
assessment and collection of income taxes
• Exemptions for clean energy and
aerospace enterprises. H.B. 1701, Reg.
Sess. (Miss. 2010).
– Grants a 10 year franchise and income tax
exemption and certain sales and use tax
exemptions to manufacturers of systems or
components used in the generation of clean
energy or the aerospace industry or those that
operate data centers or provide research and
development or job training services for such
qualifying industries.
Income and Franchise
Tax
Judicial Developments
• Buffington v. Mississippi State Tax Commission
– MSSC addressed § 27-7-49, which provides that the
DOR may issue an assessment for additional state
income tax when the IRS increases a taxpayer’s
reported taxable income, but that such an
assessment may not be issued “after three (3) years
from the date the Internal Revenue Service disposes
of the tax liability in question.”
– Taxpayer argued that the IRS “disposes of the tax
liability in question” on the date a written settlement
between the IRS and the taxpayer is executed. In
other words, the taxpayer viewed the execution of a
Form 4549 and the payment of the liability to
constitute disposition of the matter.
•
Buffington v. Mississippi State Tax
Commission (cont.)
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MSSC held that the IRS “disposes of the tax liability
in question,” for purposes of §27-7-49, on the date
the DOR receives notice from the IRS via Form
3210 that the taxpayer’s reported taxable income
has been changed.
Thus, the three-year period for assessing additional
state income tax as a result of an increase in the
taxpayer’s taxable income by the IRS begins
running upon receipt of the Form 3210 by the
Mississippi Department of Revenue from the IRS.
•
Davis v. Mississippi State Tax Commission
– Taxpayer died having failed to pay federal or
state taxes from 1997-2004
– IRS assessed federal tax liability against the
estate. MS State Tax Commission filed
notices of tax liens in Lee County Chancery
Court.
– Chancery Court gave the state priority
based on § 27-7-55, which gives an enrolled
notice of tax lien the status of a judgment
•
26 USC §6323(a)- a judgment lien creditor has
priority over a federal tax lien
•
Davis v. Mississippi State Tax Commission (cont.)
– MSSC overturned the Chancery Court
– Ruled that in spite of the language of § 27-7-55, the
Department of Revenue is not a “judgment lien
credit” within the meaning of the federal tax law
giving priority to judgment liens over federal tax
liens because the tax lien arose as a result of an
administrative determination rather than a court
judgment. Therefore the IRS had priority over the
DOR’s tax claim.
Income and Franchise
Tax
Administrative Developments
• Taxability of Gulf Oil Spill Payments
– DOR issued notice that payments received
from BP are included in gross income and
should be reported like the lost business
income would have been
– Payments for damaged or destroyed property
are not included in gross income unless the
payment exceeds the adjusted basis of the
property
• Gambling Winnings
– DOR issued a reminder that gambling
winnings reported on a W2G, 1099 or other
informational return from MS casinos are
subject to 3% nonrefundable income tax
withheld by the casino at the time of payout
– Winnings from MS casinos are not included in
MS income
– A nonresident with only MS casino winnings
or losses should not file a MS return
Sales and Use Tax
Legislative Developments
•
Mississippi Motion Picture Incentive Act. H.B.
1161, 2011 Reg. Sess. (Miss. 2011).
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Repeals the sales tax exemption under Section 2765-101(bb) for sales of production items used in the
production of a motion picture.
A new exemption for the sale of supplies and
equipment sold to an IRC §501(c)(3) host
organization coordinating a professional golf
tournament to be played in Mississippi is allowed
effective March 24, 2011.
•
Municipal Special Sales Tax. S.B. 2839, 2011
Reg. Sess. (Miss. 2011).
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Revises § 27-65-241 which authorizes the levy of a
municipal special sales tax in municipalities with a
population over 150,000
Revenue collected pursuant to the tax must be used
to pay the costs of road and street repair,
reconstruction and resurfacing projects based on
traffic patterns, need and usage, and for the costs of
water, sewer and drainage projects.
A municipality may not hold an election with regard
to such a special sales tax more than twice.
The Department of Revenue can retain 1% of the
proceeds of the tax to defray the costs to the
Department for collection of the special tax.
•
Tourism Project Sales Tax Incentive Program.
H.B. 1107, 2011 Reg. Sess. (Miss. 2011).
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Revised the definition of “Tourism Project” for
purposes of the Tourism Project Sales Tax
Incentive Program to include hotels having a
minimum of 25 guest rooms or suites, a minimum
private investment of $15,000,000 and $200,000
per guest room or suite, and having restaurants,
spas and other amenities as determined by the
MDA.
“Tourism Project” now also includes tourism
attractions located within Entertainment Districts
with live entertainment 3 nights per week and
seating for at least 40.
•
Tax on Refinery Machinery and Refinery
Construction Activity. H.B. 598, 2011 Reg.
Sess. (Miss. 2011).
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Deletes the repealer of a provision which levies a
tax on the sale of manufacturing or processing
machinery installed or used as a refinery in
Mississippi and on construction activities performed
at or in regard to such a refinery.
The law also requires the owner of the refinery
holding a direct pay permit issued by the DOR to
furnish the permit to the seller of the machinery or
the provider of the construction services, as a result
of which the seller or provider of construction
services is relieved of the duty to collect the tax and
the owner of the refinery will pay the tax.
•
Tax on Refinery Machinery and Refinery
Construction Activity. H.B. 1684, 2010 Reg.
Sess. (Miss. 2010).
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1.5% on the gross proceeds of sales of
manufacturing or processing machinery to be
installed or used at a refinery
3.5% of 103.5% of the total contract price or
compensation paid for the performance of
construction activity at a refinery
•
Emergency Telephone Service Charge. S.B.
2938, 2010 Reg. Sess. (Miss. 2010).
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Imposes a $1.00 charge on all retail prepaid
wireless service transactions in MS for an
emergency telephone service to be collected and
remitted by the provider along with sales and use
tax
The provider can take 2% of the amount collected
as an administrative deduction
Collect the charge and remit it to the DOR by the
20th of the following month
County Boards of Supervisors can impose an
additional $1.00 charge on residential users and
$2.00 on businesses for Voice over Internet
Protocol telephone services
•
Farmers Market Exemption. H.B. 1566, 2010
Reg. Sess. (Miss. 2010).
–
Adds to the list of sales tax exempt agricultural
products food products that are grown, made or
processed in MS and sold at farmers markets that
have been certified by the MS Department of
Agriculture
Sales and Use Tax
Administrative Developments
•
2011 Sales Tax Holiday.
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DOR issued a notice reminding taxpayers that the
state’s third sales tax holiday will be Friday, July 29,
2011 through midnight on Saturday, July 30, 2011.
Clothing and footwear items under $100 per item
are exempt from sales tax
Accessories, jewelry, backpacks, cleats, sporting
goods, and school supplies are not exempt
•
Notice to Pet Breeders.
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DOR issued Notice 72-11-001 to clarify for pet
breeders that the exemption from sales tax for sales
of livestock doesn’t not include dogs, cats, or other
domestic animals usually kept as pets
Those who do not hold themselves out as breeders
or breed pets infrequently are not required to
register to collect sales tax
•
Selling pets from one litter no more than once in a 2-year
period is considered infrequent
•
Wrecking and Towing Services.
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DOR amended Miss. Admin. Code 35.IV.04.01 to
provide that wrecker or towing services, when not
provided in conjunction with any other taxable
services (such as repairs or storage) are not subject
to sales tax
If other services are provided in conjunction with the
towing service, then the entire value of the towing
and the other services combined is subject to sales
tax
Property Taxes
Legislative Developments
•
Tax Sales of Property in a Public Improvement
District. S.B. 2938, 2011 Reg. Sess. (Miss.
2011).
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If property in a public improvement district is to be
struck off to the state following an unsuccessful tax
sale pursuant to § 27-41-59, the county tax collector
may offer the property for sale for a second time.
If there is no purchaser of the property on the
second attempted sale, the property shall pass to
the state as if no second sale occurred. If the
property is sold at the second sale, the property
may be redeemed at any time within two years after
the date of the second sale in the manner provided
in § 27-45-3.
•
Publication of School Boards’ Annual Ad Valorem Tax
Assessment. S.B. 2547, 2011 Reg. Sess. (Miss. 2011).
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School Boards are not required to publish an annual
ad valorem tax assessment in the newspaper if
there is no increase in the ad valorem tax effort in
dollars that has been proposed.
•
Costs for cleaning certain property to be added to tax
bills. H.B. 1412, 2010 Reg. Sess. (Miss. 2010).
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Authorizes costs and penalties assessed by a
municipal governing authority to clean private
property to be added to ad valorem tax bills and to
be collected by the tax collector. The tax collector is
authorized to sell the property when such costs and
penalty are not paid.
Property Taxes
Judicial Developments
•
City of Jackson v. Rebuild America, Miss. Ct. App.,
Dkt. No. 2008-CA-02121-COA (Miss. App. 2011).
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Property was conveyed by the City of Jackson to a community
development corporation by a quitclaim deed with a possibility
of reverter for construction of low and moderate income
housing. The corporation failed to meet the conditions set forth
in the quitclaim deed and also failed to pay taxes in 2004.
The property was sold in a tax sale in 2005, with proper
statutory notice being given to the corporation, but no notice
was given to the City of Jackson. The tax sale was voided
because the City had a reversionary interest in the property
which was sufficient to require that statutory notice of the right
of redemption be given to the City.
•
Holly Springs Realty Group, LLC v. BancorpSouth
Bank, Miss. Ct. App., Dkt. No. 2009-CA-00923-COA
(Miss. App. 2010).
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Tax sale of a condominium to a purchaser was void as to the
bank that held a mortgage on the property because the
chancery court clerk failed to give notice to the bank after the
tax sale and before the expiration of the redemption period.
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The tax sale being void, the bank’s mortgage lien was
unaffected , and the bank was entitled to foreclose on the
property but had to reimburse the purchaser for the real
property taxes the purchaser paid in the tax sale.
•
Fidelity & Guaranty Insurance Co. v. Blount, Miss. S.
Ct., Dkt. No. 2008-CA-01931-SCT (Miss. 2011).
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The substantive and procedural due process rights of several
surety companies were not violated when the State Tax
Commission failed to give notice of tax audits and the resulting
assessments of contractors tax against several construction
companies that were the principals of the surety companies.
The surety companies were deemed to not be taxpayers
contemplated under Section 27-65-37 that would be entitled to
notice of assessments.
The taxpayer entitled to notice of an assessment is the person
liable for tax to the state or who has paid tax to the state, or
the person required to obtain a sales tax permit before
engaging in business in the state. The construction
companies, not their surety companies, were the taxpayers
here and they were afforded the due process required by law.
The sureties were given proper notice of their principals failure
to pay pursuant to Section 27-65-57 and proper demand was
made on them to pay the unpaid taxes, including damages,
penalties and interest, under their surety bonds.
•
3545 Mitchell Road, LLC v. Bd. Of
Supervisors of Lee County, Miss., Dkt
No. 2009-CT-00292-SCT (Miss. 2010).
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The Board of Supervisors reassessed affordable
rental housing complexes because of a failure on
the part of the taxpayers to submit proper
documentation of net operating income which would
entitle the taxpayers to a more favorable
assessment formula.
The more favorable assessment formula was
mistakenly still initially used despite the taxpayer’s
failure to submit the proper documentation
•
3545 Mitchell Road, LLC v. Bd. Of
Supervisors of Lee County, Miss., Dkt
No. 2009-CT-00292-SCT (Miss. 2010)
(cont.).
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The Board of Supervisors subsequently reassessed
the taxpayers using the standard assessment
formula, drastically increasing the ad valorem
property taxes owed by the taxpayers.
MSSC held that § 27-35-143(11) applies to
authorize a reassessment when property has been
incorrectly categorized. The Supreme Court found
no evidence that the taxpayers’ property was
incorrectly categorized as “affordable rental
housing” so the reassessment was not authorized.
Property Taxes
Administrative Developments
•
Reclassification of Property Does Not Result in
Erroneously Paid Taxes.
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§ 27-73-7 authorizes a refund following a reassessment in the
case of “erroneously” paid taxes.
The Attorney General issued an opinion in a situation where a
property’s classification unit was modified from Class A to C+
due to architectural and landscaping factors. The property was
reassessed and valued lower than in prior years. The taxpayer
inquired as to whether the resulting decrease in assessment
constituted an error in assessment that would authorize a
refund of the prior year’s taxes paid in excess of those due
under the current decreased assessment.
The Attorney General opined that such a classification which
led to a decreased value and a lower assessment did not
result in the authorization of a refund for prior year’s taxes paid
at the higher assessed value.
•
City-owned property leased to a private nonprofit is taxable.
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Attorney General opined that a private leasehold
interest in city-owned property is not exempt from
taxation unless expressly authorized or provided by
law.
Specifically, when land owned by the city is leased
to a nonprofit operator for use as a golf course, the
leasehold interest is taxable by the county.
In assessing the value of the leasehold interest, the
tax assessor must determine the true value of the
leasehold, based upon the current use of the
property.
•
Past due ad valorem taxes run with the
land.
– The Attorney General opined that past due
ad valorem taxes assessed on real and
personal property run with the land and
survive foreclosure.
•
Record owner of January 1 liable for
entire year’s ad valorem taxes.
– The Attorney General opined that ad
valorem taxes are assessed upon real
property on January 1 of each tax year and
the record owner on that date is liable for the
entire ensuing year’s taxes, even if the
property is sold after January 1. Therefore,
for that year’s tax assessment purposes, the
tax records as of January 1 cannot be
altered.
•
Fee-in-lieu of taxes.
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§ 27-31-104 gives County Boards of Supervisors and
municipal authorities the power to grant a fee-in-lieu of taxes
for projects totaling over $100,000,000.00.
The fee-in-lieu of taxes may be stated as a fraction or
percentage of the ad valorem taxes otherwise payable or may
be a set, stated dollar amount.
If the fee-in-lieu is stated as a fraction or percentage of ad
valorem taxes otherwise owed, it may increase or decrease
from year to year based on changes in millage rate or
assessed value.
The Attorney General clarified that the statute does not allow
the granting authority to set a minimum amount of fee to be
collected in the event that the fee is calculated as a fraction or
percentage of the ad valorem tax that would otherwise be
owed.
In the event that the fee is a set, stated dollar amount, that
statute provides that the actual fee collected must be the
greater of that stated dollar amount or one-third of the total
amount of all ad valorem taxes otherwise payable each year.
Other Taxes
•
Insurance Premiums Tax. H.B. 1528, Reg.
Sess. (Miss. 2011).
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Insurance companies that invest designated capital
in MS small business investment companies earn a
credit against state premium tax liability in an
amount equal to 80% of the participating company’s
investment.
• A credit of 16% annually over 5 years
• Decertification of the MS small business
investment company can result in disallowance
or recapture of the credit
•
Tobacco Equity Tax. S.B. 3020, Reg. Sess.
(Miss. 2011).
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Every MS licensed cigarette distributor is required to
report an pay the $0.0135 cigarette tax on all
cigarettes purchased from manufacturers who were
not party to the tobacco settlement agreement
July 1 of each year, the tax increases by the greater
of 3% or the percentage increase in the most recent
Consumer Price Index for urban consumers
Other Points of Interest
Reorganization of
Department of Revenue,
Effective July 1, 2010
-State Tax Commission as administrative body becomes
Department of Revenue.
- Ed Morgan appointed Commissioner of Revenue.
- Administrative functions generally unchanged.
- Board of Review, first level of administrative appeals, remains in
Department of Revenue.
- Board of Tax Appeals, an independent body, is now the second
level of the appeal process
Significant changes to rules of appeals.
- Former 30-day appeals periods generally extended to 60 days.
Both the taxpayer and the Department may appeal adverse
decisions of the BTA.
- Taxpayer-Appellant must post a bond for one-half the amount in
controversy, but there is an avenue to avoid the bond if the
Department’s interests are otherwise protected. Important for
individual taxpayers. In the alternative, may pay the tax under
protest.
- Must pay the uncontested amount within the 60-day appeal
period.
Revised Limited Liability
Company Act
Effective January 1, 2011 and 2012
•
Mississippi Revised Limited Liability Company
Act. H.B. 683, 2010 Reg. Sess. (Miss. 2010)
revised Mississippi’s Limited Liability Company
Act. The Revised Limited Liability Company Act
(“Revised Act”) revises and clears up uncertainty
in the existing laws and adds new sections
including provisions from the Delaware LLC Act
and the Revised Uniform LLC Act.
•
Revised LLC Act
- Allows, but does require, LLCs to have officers
with traditional corporate titles.
- Liability of members, managers, and officers
may not be limited with regard to wrongful
financial benefits, intentional infliction of harm,
intentional criminal acts, wrongful distributions,
bad faith violation of covenant of good faith and
fair dealing.
•
Revised LLC Act (cont.)
- Eliminates concept of dissociation since it is no longer required
under tax laws.
- A member loses governance rights (but not financial rights) if the
member voluntarily files for bankruptcy, makes an assignment for
creditors, seeks appointment of a receiver or trustee, or, in the
case of an entity-member, files for dissolution or involuntarily
becomes subject to such proceedings
- Heirs of a deceased members become members by default if the
Operating Agreement does not provide otherwise (does not apply
to PLLCs).
- Provides default rule that member voting is based on profit
sharing percentage.
•
Revised LLC Act (cont.)
- Requires domestic and foreign LLCs to file annual reports.
- Foreign LLCs must pay an annual filing fee of $250. There
is no filing fee for domestic LLCs.
- Authorizes the Secretary of State to administratively
dissolve an entity for failure to file an annual report, pay
fees or fines owed, or have a registered agent in the state.
•
Implementation of the Revised LLC Act
- Effective date for new entities is January 1,
2011.
- Existing entities must begin filing annual reports
in 2011, but the remaining provisions of the
Revised Act are not effective for entities in
existence prior to January 1, 2011 until
January 1, 2012.
•
Implementation of the Revised LLC Act (cont.)
- Annual Reports due April 15th every year,
beginning in 2011
- The Secretary of State’s Office is reporting
that any entity filing by September 1,
2011 will be treated as filing its first Annual
Report on time
- In mid-September 2011, delinquent LLCs will be notified
that they have until December 1, 2011 to file an annual
report or they will be administratively dissolved
•
Uniform Real Property Recording Act.
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For documents eligible to be recorded in the land
records, if the law requires that a document be an
original, be on paper or other tangible medium, or
be in writing, an electronic filing will suffice
If the law requires that a document be signed or
notarized in order to be recorded, an electronic
signature and acknowledgment will suffice
Effective July 1, 2011
•
Uniform Athlete Agents Act.
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Agents must register with the Secretary of State,
give notice of any pending litigation against them
and submit to a criminal background check
Before having initial contact with a student-athlete,
family members, or other representatives, the agent
must notify the student’s educational institution
Within 72 hours of signing a contract with an agent,
or before the athlete’s next scheduled event in
which he or she could participate, both the agent
and the student must notify the educational
institution
Civil penalties up to $25,000 can be assessed
•
Automatic Extension of Corporate Charters.
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If a business corporation was created for a limited
period of time before April 18, 1988, the life of the
business corporation will be deemed to be
perpetual if it continued operations for 30 days after
March 14, 2011, even if the limited period of
duration has expired
If a nonprofit corporation was created for a limited
period of time before January 1, 1988, the life of the
business corporation will be deemed to be
perpetual if it continued operations for 30 days after
March 14, 2011, even if the limited period of
duration has expired
•
Mississippi Nonprofit Corporation Act.
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Any nonprofit corporation which is granted a
determination of exemption from tax pursuant to §
501(c)(3) of the Internal Revenue Code must notify
the Secretary of State of such status within 30 days
of receipt of the determination letter
The nonprofit corporation must also notify the
Secretary of State within 30 days of such taxexempt status being suspended or revoked
Questions?