On January 16, the Mississippi House of Representatives passed a sweeping tax reform bill. House Bill 1, the “Build Up Mississippi Act,” includes numerous adjustments to the overall tax structure in our state, including phasing out the individual income tax.
Below is a run-down of what exactly HB1 would do and an analysis of its key provisions.
Phase out the individual income tax
In 2022, a measure was enacted that reduces the individual income tax incrementally: eliminating the 4% bracket in 2023, trimming the 5% bracket to 4.7% in 2024, 4.4% in 2025, and 4% in 2026. HB1 would further cut the rate to 3% in 2027, then decrease the rate through a series of annual decrements of .3% from 2028 until 2037 to a terminal individual income tax rate of 0%.
End the sales tax diversion to cities
To counter the loss of income tax revenue, the current diversion of 18.5% of general sales taxes to municipalities would end and be retained by the state. This would apply only to those commodities currently taxed at the full 7%. The diversion to municipalities would still be maintained for goods and services currently taxed at a lower sales tax rate, e.g., vehicles.
Increase the sales tax rate on non-grocery items; reduce the rate on groceries
To replace the current sales tax diversion to municipalities, a local sales tax of 1.5% would be added to the present general 7% sales tax rate for a total of 8.5% on non-grocery items.
Total sales tax on groceries would be reduced to 6%, including the new 1.5% local component in the second half of 2026 (Fiscal Year 2027). The rate would decline in .2% increments over 10 years, beginning in FY 2027, permanently setting the sales tax on groceries at 4% (2.5% state and 1.5% local) in 2036. Only non-prepared food products would qualify for the lower rate, consistent with grocery items that are eligible for the SNAP program, commonly known as “food stamps.” The 1.5% local tax would not apply to goods and services currently taxed at a lower
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