Ranked by Kiplinger Personal Finance as the sixth most tax-friendly state for doing business, Mississippi enacted the largest tax cut in its history in 2016, including the gradual elimination of the state’s corporate franchise tax. This provides a new tool in the Mississippi Development Authority’s arsenal to attract economic development to the state by eliminating a burdensome tax on businesses.
Currently, Mississippi businesses pay $2.50 for every $1,000 of the value of a corporation’s capital used, invested, or employed within Mississippi in excess of $100,000. Beginning in 2018, the franchise tax rate drops by 25 cents annually until the rate is eliminated entirely in 2027. Once the tax is phased out, a company would be subject to the minimum franchise fee of $25 each year.
Combined with the reduction in income tax rates applicable to individuals, corporations, trusts and estates, the franchise tax phaseout makes Mississippi more economically competitive.
In Senate Bill 2858, the Mississippi Legislature recognized an issue with the franchise tax: not only is it a disincentive for new industries to come to Mississippi, it’s also an incentive for existing businesses in the state to consider relocating to states with a more advantageous tax policy. Eliminating the franchise tax removes a disincentive to in-state investment. In a world in which governments are competing for business, the franchise tax is an impediment to job creation.
Douglas Lindholm, president and executive director of the Council on State Taxation, agreed with the recent cut. Named on the Tax Business 50 list of the most influential tax professionals on the globe, Lindholm called the elimination of franchise taxes “fiscally prudent,” stating, “The gradual elimination of the tax will encourage business investment and job creation by significantly reducing the direct costs imposed on businesses seeking to expand or relocate in the state.”
From the state’s standpoint, franchise taxes have become unreliable sources of revenue as corporate revenues decreased considerably in recent years. Many companies have reorganized to avoid the tax, or have moved their affiliates to jurisdictions with better tax policies.
Eliminating the franchise tax provides greater incentive for businesses to locate or stay in Mississippi. The Mississippi Development Authority is now better equipped to compete for economic development projects both nationally and globally.
Similarly, the establishment of the Mississippi Works Fund sends a clear signal to the manufacturing community that our state is serious about supplying companies with a job-ready workforce. The fund, created in Senate Bill 2808, allots $10 million for workforce training at community colleges for 2016, and $5 million each following year.
The tax cuts and the workforce training funds, combined with our best-in-the-nation community college system and existing talent pool, sets the table for Mississippi to flourish. Growth in our state’s economy depends on all of us, working as a team, to find innovative ways to attract new career opportunities for Mississippians across the state.
» Glenn McCullough, executive director of the Mississippi Development Authority, writes an exclusive, quarterly column for the Mississippi Business Journal.