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Corporate tax rate competitive, but other factors at play

One might imagine strategists in a corporate headquarters poring over data and deciding where in the Southeast to open a new plant, based on the state with the lowest corporate taxes.

Mississippi, with its highest corporate rate at 5%, which ranks it 41st (in this instance, lower is better), would stand out among neighboring states as the most likely location.

But that’s not necessarily true.

“Mississippi’s corporate tax rate is competitive with other states in the Southeast and very competitive with states outside the Southeast,” according to Scott Hamilton, the Mississippi Development Authority’s (MDA) director of communications.

And corporate tax rates are important because taxes are just another cost of doing business and a corporation wants the taxes to be as low as possible.

Mississippi’s current corporate tax law was passed by the Legislature and took effect in the calendar year 1983. It provided for a 3% tax on the first $5,000 of taxable income, 4% tax on the next $5,000 of taxable income and tops off at a 5% tax on all taxable income in excess of $10,000.

But there are such taxes as franchise taxes, Hamilton indicated, and to make valid comparisons one simply can’t isolate the corporate tax and exclude all other taxes, incentives and factors.

Many variables

“Corporate tax rates are only one of several factors in recruiting new business for Mississippi,” Hamilton said. “They can’t be cited as the deciding factor because businesses vary so much and their needs and internal structures and measures of success are so different.”

For example, it depends on the corporate infrastructure, and the head of a corporation’s Mississippi branch might not be measured on the corporate tax rate as a factor because he is allotted a certain amount within the corporate structure and the allotment might have nothing to do with corporate taxes.

“The manager of the Mississippi branch is not going to be measured on it. Something such as educational training might be more important to a particular company. Or workforce training.”

Corporate taxes can’t be cited as most important for Mississippi startup companies, either, because most businesses don’t make money at the beginning. For instance, Hamilton said, a new Mississippi-based company might well be more interested in reducing its capital outlay.

Overall business tax climate?

In a state business tax climate index put out by the Tax Foundation that includes such categories as corporate tax score, fiscal balance score and individual income tax score, Mississippi ranked 25th in the United States, with a score of 5.15. In the index, Louisiana ranked 27th with a score of 5.06; Arkansas was 42nd with a score of 4.44; Alabama 16th, 5.66, and Georgia 20th, 5.44.

On the foundation’s index of unemployment insurance, Mississippi ranked 2nd with a score of 6.51. Louisiana was 21st, 5.39; Arkansas, 45th, 4.06; Alabama, 6th, 6.04, and Georgia, 34th, 4.56

The bigger picture?

Hamilton emphasized the whole, extensive array of incentives offered by Advantage Mississippi and said that for any given corporation moving into Mississippi, corporate taxes can’t be assumed to be the most important factor. Advantage Mississippi, described by the MDA as “Mississippi’s vision for economic growth and prosperity,” was created during a special session of the Legislature in August 2000, with the MDA as the “architect for the most sweeping economic development plan in the state’s history.”

The initiative placed a priority on access to technology, community support, rural development, programs for existing business and industry and significant tax credits, according to the MDA.

Contact MBJ contributing writer at George McNeill at mbj@msbusiness.com.

Tax Credits & Abatements

A major feature of the Advantage Mississippi initiative is in the area of tax credits and abatements that are meant to help recruit new businesses for the state, including:

• No sales tax on purchases of raw materials, processing chemicals or packaging materials.

• No sales tax on direct purchases of construction materials, machinery and equipment for qualified businesses that are financed through Industrial Revenue Bonds or Small Enterprise Development Bonds or for qualified businesses locating or expanding in Tier Three Counties.

• Partial (50%) sales tax exemptions for purchases of construction machinery, materials and equipment in Tier One and Tier Two counties for qualified businesses.

• State income tax credits for five years up to $2,000 for each new job created by a new or expanding business.

• Five-year state income tax credits of $1,000 for each new R&D job created.

• State income tax credits equal to 50% of basic skills training and job retraining expenses.

• State income tax credits for qualified industries in conjunction with certain bond financing through the Mississippi Business Finance Corporation.

• Exemptions from county property taxes, except school taxes.

And Advantage Mississippi offers such financial incentives as:

• Large projects may qualify for the Major Economic Impact Authority, which puts at the disposal of MDA funds that can be used on projects of $300 million or more.

• The Rural Economic Assistance (RED) Program: Working as companion program to certain bond financing, RED allows eligible businesses to receive credits on Mississippi corporate income taxes.

• The Industrial Development Revenue Bond Program reduces the interest costs of financing projects for companies through the issuance of both taxable and tax-exempt bonds. Additionally, ad valorem and sales tax exemptions and the RED program credits are available in conjunction with this type of public financing.

SOURCE: Mississippi Development Authority


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