Mississippi Legislature Passes Two Bills that Should Provide Greater Certainty to Businesses and Spur Economic Development

State & Local Tax Alert: Mississippi Edition

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The Mississippi Legislature recently passed two bills that should provide greater certainty to businesses and spur economic development in the Magnolia State. House Bill 892, signed into law by Governor Phil Bryant on March 27, imposes a limitation on the amount of time that the Mississippi Department of Revenue can take to audit a taxpayer for income, franchise, or sales and use tax liability. House Bill 844, passed unanimously by the Mississippi Senate on March 31 and currently awaiting Governor Bryant’s signature, would exempt manufacturers from the sales tax on energy used for industrial purposes.

House Bill 892: Ends Indefinite Audits

House Bill 892 amends Mississippi Code Sections 27-7-49, 27-13-49, and 27-65-42 to align Mississippi with most other states that provide a definite statute of limitations for examining tax returns and assessing additional taxes. Now, the Department of Revenue must commence an audit no later than three years after the later of the due date of the return or the filing date. Under prior law, if the Department of Revenue issued a notice to a taxpayer during the three-year period, the statute of limitations for determining the tax liability remained open indefinitely, unless the taxpayer could show that the Department of Revenue had failed to determine the tax liability “with reasonable promptness and diligence.” This language essentially allowed the Department of Revenue to keep an audit open indefinitely by notifying a taxpayer within the three-year examination period that its return was going to be audited.

House Bill 892 effectively ends indefinite audits by requiring the Department of Revenue, as a general rule, to determine a taxpayer’s tax liability no later than one year after the taxpayer’s three-year examination period. The respective three- and one-year limitation periods will not apply in cases where a taxpayer fails to file a tax return or has filed a false or fraudulent tax return. Similarly, the three- and one-year limitation periods may be extended if the Department of Revenue and the taxpayer so agree.

Additionally, House Bill 892 requires taxpayers to maintain an accurate and complete set of records and other information sufficient to allow the Department of Revenue to determine the correct amount of tax due. Refusal or delay by a taxpayer to provide documentation for examination upon the Department of Revenue’s request will result in an assessment being made by the Department of Revenue from any information available, which shall be deemed prima facie correct.

A copy of House Bill 892, which is retroactively effective to January 1, 2013, may be found here.

House Bill 844: Exempts Manufacturers from 1.5 Percent Sales Tax on Energy

Under existing law, Mississippi manufacturers must pay a 1.5 percent sales tax on energy they purchase and use for “industrial purposes.” House Bill 844 would amend Mississippi Code Section 27-65-107 to exempt manufacturers from the sales tax on electricity, current, power, steam, coal, natural gas, liquefied petroleum gas, or other fuel used for industrial purposes. Once Governor Bryant signs it, House Bill 844 would bring Mississippi in line with many other states that do not tax energy used in the manufacturing process.

In addition to usage by manufacturers, House Bill 844 would also exempt energy used by producers or processors of poultry or poultry products, livestock or livestock products, domesticated fish or domesticated fish products, marine aquaculture products, milk or milk products, poultry and livestock feed, and the irrigation of farm crops.

House Bill 844 would not take effect until July 1, 2014. A copy of the conference report for House Bill 844, which has been sent to Governor Bryant for approval, may be found here.