Because taxation is the 400-pound gorilla roaming the State Capitol this legislative session, is it time for a look at Mississippi’s corporate income tax structure, even though low rates make us competitive with neighboring states?
“Look at the things that have happened at automobile industries across the South,” said Dr. Cecil D. Burge, vice president for research and economic development at the University of Southern Mississippi. “It’s almost like we’re not collecting anything from them. We’re going to get our benefits from the employees rather than taxing the corporations.”
Could we collect more corporate income tax, offer more services and still be considered pro-business?
“Why would you want to do that? I come from the point of view that ultimately, all taxes are paid by individuals,” said Dr. Charles Campbell, professor of finance and economics at Mississippi State University.
“I really don’t understand why we can’t raise the personal income tax or make it a little steeper in terms of the grade ends. We could raise a lot of money really easily that way and not hurt anybody at the bottom at all. It would make so much more sense than to try to mess with the corporate income tax because that’ll never fly with the governor, particularly with his beliefs about economic development.”
Do we have enough room to raise our corporate tax rate and still be competitive?
“We’re in a very cost competitive environment in the world right now,” said Burge. “When you’re competing with the Nevadas, particularly for some of the start-up and technology businesses, I think any movement upward in the corporate tax structure would be a disadvantage for us.”
State economist Phil Pepper said there’s no way to tell whether industry would prefer it if taxes were raised to provide more services.
“It depends on where the money would be spent, and I suspect most businesses feel like they can best determine where they need to spend the money rather than sending it to the state and letting the state provide additional services to the people,” he said.
As Mississippi prepares to rebuild after Hurricane Katrina, now is certainly not the time to be raising our taxes on businesses such as the corporate income tax rate or any other tax, said Ron Aldridge, Mississippi state director of the National Federation of Independent Business.
“With so many Mississippi businesses already having the rug pulled out from underneath their economic feet, raising corporate tax rates would surely either help permanently put them out of their misery or perpetuate their instability,” he said. “We’ve got to make sure we’re encouraging companies to invest in Mississippi for the long term, and in doing so must be competitive not just in our region, but also internationally. Increasing our state’s corporate tax rate would be like shooting ourselves in the foot. We’ve not only just had the worst disaster in America’s history, but we’ve gone through a multi-year period of numerous manufacturing plant losses.”
Mississippi was the first state in the nation to impose a “property tax relief” sales tax when the state Legislature, under Gov. Mike Conner’s reign, voted in 1932 to impose a 2% sales tax as a way to tax non-landowners. Today, 42% of state general fund revenue is derived from sales taxes.
Unlike other states in the region that levy a higher rate for corporations, Mississippi corporations are taxed at the same rate as individuals.
Even though Mississippi ranks sixth lowest in the nation for corporate income taxation, compared to Alabama (5th), Tennessee (10th), Louisiana (17th) and Arkansas (28th), it has the nation’s highest state sales tax on food. Only one state has lower taxes on cigarettes. Lt. Gov. Amy Tuck’s plan to shift the taxes from groceries to cigarettes has become a controversial hot potato, with the Senate threatening to override Gov. Haley Barbour’s veto on the grocery tax bill.
Raising corporate tax rates would be a sure negative signal to investors and would only foster further disaster for Mississippi, said Aldridge.
“Mississippi’s corporate income tax rate is the same as our individual tax rate for a good reason: to allow businesses no matter what their legal structure to be taxed similarly,” he said. “Subchapter S corporations, LLCs, partnerships and sole proprietors generally are taxed at individual rates while standard corporations are taxed at similar corporate rates. Although some might think that our maximum tax rate of 5% is relatively low, one must look at the all-inclusive details of our total business tax structure. You can’t just look at one tax without looking at our total business tax structure.”
Mississippi corporations must also pay an annual corporate franchise tax of 2.5% for every $1,000 of capital, Aldridge pointed out.
“While the corporate tax rate is only applicable when one is profitable, the franchise tax hits a company even when it’s down,” he said. “Also, while some neighboring states allow a corporation to deduct its federal taxes on the state corporate return, Mississippi does not. Another key difference is that we are one of a minority of states that doesn’t conform to the federal income tax base.”
When looking at the whole business tax structure, consider also that Mississippi is one of only about 14 states that still require businesses to pay a personal property tax on inventories each year, an unfair and discriminatory tax that needs to be repealed, said Aldridge.
“For Mississippi, it’s an economic development disincentive,” he said.
Contact MBJ contributing writer Lynne W. Jeter at Lynne.Jeter@gmail.com.