The Mississippi Economic Council capped off its annual luncheon Thursday with Gov. Phil Bryant’s signing of a tax apportionment law the business organization had proclaimed its top priority heading into the 2014 legislative session.
Bryant, joined by Lt. Gov. Tate Reeves, signed House Bill 799 in the corridors of the Jackson Convention Center Complex at the close of the luncheon.
In remarks ahead of the signing, MEC President & CEO Blake Wilson said the new law will help correct a business taxing system that “is out of whack.” In seeking to rally business groups during the legislative session, Wilson had called HB799 a necessary move to “rein in” an “out-of-control” Department of Revenue.
The DOR has warned the new tax law will cost the General Fund upward of $100 million.
The law, which begins Jan. 1, 2015, sets new conditions for the DOR to follow in applying “alternative” methods of taxation, which in the instance of Mississippi would be the so-called “market method” which apportions a company’s tax liability on revenues earned in the state. Legislators refused in 2012 to designate the market method as a statutory option, but the DOR has applied it on occasion and says that a couple dozen businesses have asked for the method to be applied in assessing their taxes. Those businesses must now justify use of the alternative method the same way the DOR will have to.
The Mississippi Supreme Court last summer upheld the use of the market-based method in apportioning taxes to Equifax Credit Information Services. The push for HB799 came in reaction to the ruling which the MEC and legislators said diminished the state’s hard-won image as business friendly. With the ruling, the Georgia company’s tax bill went from zero to over $700,000 for a three-year period ending in 2012.
Mississippi law has long authorized the “cost-performance” method. The approach allows a multistate company to place the bulk of its tax liabilities in the state in which it incurred the expenses for earning the money.
HB799 mandates that the DOR can use alternative apportionment such as the market method only when it shows with a “preponderance of evidence” the method best reflects a taxpayer’s business activity in the state. An earlier version of the bill set a much higher standard of “clear and convincing evidence.”
A further condition requires that the alternative method be invoked only in “limited and unique, non-recurring circumstances – a standard the DOR says will be difficult to apply considering that it would prohibit using a market-based apportionment on a multistate company that earns money in Mississippi year after year.
Also after Jan. 1, under the next law, the DOR will be prohibited from directing multistate companies to provide combined tax returns unless the agency can show a multistate company “improperly” shifted taxable revenue earned in the state to an affiliated entity in another state. DOR spokeswoman Kathy Waterbury said the agency will need clarification on that provision.
“We are unaware of any time when shifting Mississippi income to another state is proper,” she said. “What this does, in effect, is establish a separate and vague standard for requiring a combined or consolidated return.”
Bryant and Reeves, meanwhile, called the legislation a victory for businesses seeking “clarity” and “certainty” in how the state assesses their taxes.
They also praised what they said was a fairness provision that specifies a phased in reduction of interest charged on income tax penalties from 1 percent to.5 percent. The interest was set years back when interest rates were mu higher.
Another provision limits the assessment of interest to the unpaid amount of a tax assessment rather than the full tax bill.
HB799 was introduced by Rep. Jeff Smith. It was reconciled in a conference committee with Senate Bill 2487 introduced by Sen. Joey Fillingane.
The DOR said its data show 81 of the top 100 corporate taxpayers in the state are based outside Mississippi
Corporate income taxes made up only 3.8 percent of the state’s total tax collections in 2011, according to the Washington-based Tax Foundation, which cited the figure for the most recent year available.