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STARTING AND OPERATING A BUSINESS IN MISSISSIPPI Copyright © 2008, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Mississippi has a fairly typical tax and legal structure under which businesses must operate, not significantly different from most other states, except that Mississippi is relatively free of bureaucracy, with no minimum wage law, no labor department bureaucracy, and no state EEO agency. In addition, it is one of the few states that does not require a sole proprietor or partnership to register or publish a fictitious business name statement. Mississippi imposes an income tax on individuals, a corporate income tax, a franchise tax (capital values tax) on corporations, a sales and use tax, various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in Mississippi in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Mississippi has a number of advantages as a business location, including the best highway system in the southern United States, and the fourth best in the nation, according to a nationwide highway study conducted by the University of North Carolina at Charlotte. Mississippi has also been commended by the Federal Highway Administration for the best record of any state in planning and execution of highway improvements. Strategically located for access to international markets on the Gulf of Mexico and the Mississippi River, Mississippi is within one day's drive of 55% of the U.S. population. Mississippi took a major step in the direction of encouraging new investments and job creation in the state with new legislation that went into effect on January 1, 2005 (March 14, 2005, in the case of certain sales tax exemptions), the Mississippi Major Economic Impact Act. This new law provides numerous income and sales tax benefits for projects that are designated as having major economic impacts in the state, including:
While the benefits of the Major Economic Impact Act will not directly benefit small businesses, it should help to significantly boost the Mississippi economy, with spillover benefits to many small businesses, as well. At present, the state's economy is still reeling from the devastating impact of Hurricane Katrina and additional damage inflicted in 2008 by Hurricane Gustav, and is in a weakened condition, in terms of the level of unemployment and other economic growth measures, but has been gradually recovering. In August, 2008, the state's unemployment rate was 7.7%, up from 6.7% a year earlier, but down considerably from the 10.3% rate in September of 2005. The state's unemployment level is still much higher than the national unemployment rate of 6.1% for August, 2008, largely due to the lingering impact of Katrina. Unemployment rates had been as high as 14% or more in some of the storm-ravaged counties on or near the coast, while the northern parts of the state have continued to thrive, with unemployment rates as low as 4% or 5% in some northern counties that were less affected by Katrina and Gustav. On a more positive note, the state has a very low cost of living, compared to national averages, including exceptionally low housing costs. To view the latest federal Bureau of Labor Statistics unemployment rate data for Mississippi or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Mississippi can do so as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Mississippi also provides for limited liability partnerships, in which no partner is liable for certain debts of the partnership, somewhat like a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Mississippi can be established with no legal formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. No separate tax form filing is required, generally, for a sole proprietorship, under the Mississippi income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on Mississippi income tax and filing requirements for individuals. Operating as a sole proprietor in Mississippi is generally much simpler than as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, or obtain workers' compensation coverage for yourself. However, if your sole proprietorship will be selling tangible personal property or certain types of services, you will need to register for and collect Mississippi sales taxes, as discussed in Section IV(d). (c) Partnerships. Mississippi's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, in general. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions). Partnerships, as entities, are not generally subject to state income tax in Mississippi. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). However, the partnership and the general partners of any partnership are liable for the state income taxes of any partners who don't file returns and pay their Mississippi taxes on the partnership income. A partnership can protect itself by making a tax payment of 5% of the partnership's net income to the State Tax Commission, which will be treated as a payment of estimated individual income tax by the partners. Partnerships are required to file an annual tax information return with the state. For details on Mississippi partnership tax return filing requirements, see Section IV(c). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Mississippi can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. There are no specific filing requirements that apply to general partnerships under Mississippi state law. However, a partnership may file a Statement of Partnership Authority with the secretary of state, designating which partners in the partnership have (or do not have) the authority to enter into specified types of transactions, such as real estate transactions. There is a $25 fee to file a Statement of Partnership Authority. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Mississippi law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the secretary of state, together with a filing fee of $50. Foreign limited partnerships must also register before being allowed to do business in Mississippi, and must pay a registration fee of $250 plus a $25 fee for an application to appoint a registered agent for service of legal process. While state law does not specifically prohibit a limited partnership from registering to also become an LLP (a limited liability limited partnership, or LLLP), the office of the secretary of state has indicated informally that no such filing as an LLLP is permitted in Mississippi, since the partnership name must include the appropriate designated initials or words indicating that it is either a limited partnership (such as "L.P." or "Limited Partnership") or a limited liability partnership (such as "LLP," "L.L.P.," "RLLP," or "Registered Limited Liability Partnership"), but cannot be both. For information on limited partnership filing requirements, see the contact information for the offices of the Mississippi Secretary of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Mississippi. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Mississippi state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. A general partnership can achieve limited liability by simply registering the partnership with the state as an LLP. Effective January 1, 2005, the new Uniform Partnership Act that was enacted in Mississippi provides increased liability protection for partners in an LLP. To form an LLP in Mississippi, you must register with and pay a filing fee of $250 to the secretary of state. Foreign LLP's, those created under the laws of another state, must register with the secretary of state and also pay a filing fee of $250. Note that one potential drawback of LLP's, if you will do business in other states besides Mississippi, is that you may not enjoy limited liability with regard to creditors of the LLP if you do business in some such states. Some states, like California and New York, only recognize certain types of professional partnerships as LLP's. Such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). (d) Corporations. To form a corporation in Mississippi, you must file articles of incorporation with the Mississippi Secretary of State and pay a fee of $50. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Mississippi, by filing an application for a certificate of authority and paying a filing fee of $500. A foreign corporation must also pay a $25 fee for an application to appoint a registered agent for service of legal process. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Mississippi, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual reports and a filing fee of $25 with the secretary of state each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in Mississippi or has income from sources in Mississippi (such as rental property income) must also file corporate income tax returns with the state and pay the state corporate income tax. Corporations that do business in Mississippi are also subject to a corporate franchise tax, which is a tax on capital stock or on the assessed value of real estate and tangible personal property located in Mississippi, whichever results in the greater amount of tax. See Section IV(c) for a discussion of state corporate income tax rates, the corporate franchise tax, and tax return filing requirements. For tax forms and more information on corporate income and franchise taxes in Mississippi, see the contact information for the offices of the Mississippi State Tax Commission, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Mississippi recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. If all shareholders are residents of Mississippi, then the S corporation is not required to pay Mississippi income tax on their behalf. However, if it has one or more nonresident shareholders, the S corporation must pay state tax at the rate of 5% on the share of its income allocable to nonresidents. However, it can be relieved of this burden if nonresident shareholders execute Form 85-380, Nonresident Income Tax Agreement,, obligating them individually to pay Mississippi state income taxes on their share of the S corporation's Mississippi-source income. The agreement form need not be filed with the Mississippi Tax Commission, but must be kept on file by the S corporation. A federal S corporation election or termination of such an election is also effective for Mississippi income tax purposes. No separate Mississippi S corporation election is required or allowed. (f) Limited Liability Companies. Mississippi, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Mississippi may also choose to operate in the form of an LLC. In most states, including Mississippi, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. Mississippi's tax laws follow the federal treatment of an LLC as either a partnership, disregarded entity (sole proprietorship) or corporation. See Section IV(c) for a discussion of the income tax treatment of LLC's under Mississippi tax laws. To form an LLC under the laws of Mississippi, one or more persons must file articles of organization with the secretary of state, which must be accompanied by a filing fee of $50. Mississippi state law allows formation of single-member LLC's, which now qualify for treatment as sole proprietorships for federal and Mississippi income tax purposes. Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Mississippi, by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $250. Foreign LLC's also must pay a $25 fee for an application to appoint a registered agent for service of legal process. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Mississippi is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Mississippi. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Usually, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from a tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Mississippi, you should require the seller to obtain a tax release for state unemployment tax from the Mississippi Department of Employment Security, which will inform you as to whether or not the seller owes unemployment tax that you must withhold from the purchase price. Similarly, the seller should provide you with a certificate or receipt from the Sales and Use Tax Division of the State Tax Commission, showing that no sales or use tax is due. CAUTION: (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. If you acquire substantially all of the assets of the seller's business and continue the business, you will automatically succeed to the seller's experience rating. To obtain the seller's favorable experience rating as a successor employer, when you acquire only a portion of the seller's business, four conditions must be met:
PLANNING POINT: EXAMPLE: (e) Withholding Tax on Real Estate Purchases. As under federal law, Mississippi generally requires a purchaser of real estate located in the state to withhold state income tax from the purchase price if the purchaser is a nonresident, except that in this case the Mississippi tax must be withheld if the seller is a nonresident of the state, rather than of the United States. Under Mississippi law, a special realty gross proceeds tax applies to the sale of real estate and any associated tangible personalty if the buyer pays gross proceeds of over $100,000 to a nonresident seller. In such case, the buyer of the property must withhold and pay over to the State Tax Commission 5% of the amount that is realized on the sale by the seller (but not more than the entire net proceeds payable to the seller). A domestic (Mississippi) corporation, or a foreign corporation that is registered to do business in the state, is considered a Mississippi resident, for this purpose. IV. MISSISSIPPI TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Mississippi is notable for its low-tax business environment,
where both the individual and corporate income taxes have
a top rate of only 5%. While intangible personal property
is mostly exempted from property taxes, Mississippi, unlike
most states, does not fully exempt business inventories
from property tax. However, manufacturing facilities in
Mississippi are generally exempted from property taxes
for at least ten years.
Unlike most other states, Mississippi does not require
a sole proprietorship or partnership operating under a
fictitious business name to register or publish the name,
which almost every other state does. Mississippi is also
one of only a few states that does not have its own state
minimum wage law or state civil rights law and it does not
even have a state labor department or civil rights agency;
instead, it defers to the federal government for the
enforcement of labor and civil rights laws in the state.
For state tax forms and tax information, see the contact
information for the Mississippi State Tax Commission in
Section VI(a).
(b) State and Local Licensing. Nearly any business, operated anywhere in the United States, will have to have at least one government license of some kind. In most cases, this will be a local license, issued by your city or county. Before you open your business, contact your local city or county hall and find out if your particular business needs one or more local licenses. Most kinds of local business licenses are granted upon payment of a fee, with no further requirements, except possibly for annual or other periodic renewal fees. However, if you are engaging in any kind of food business, you will usually need to also obtain a health department permit and show that you are in compliance with health department food-handling requirements. In addition, be sure to check with an attorney or local government zoning or planning department officials to determine if your business will be in compliance with all local zoning and planning restrictions. If you own or rent any type of facility, you will generally need fire department permits, showing that you meet fire safety codes and any construction or improvements to an existing structure will usually require a building permit. If you intend to simply operate your business from your home, you may be in violation of local zoning requirements, but this is less likely to be a concern if you don't have clients, customers, suppliers, or employees coming to your house on business, on a regular basis. State governments have traditionally required special licenses for many kinds of professionals, such as physicians, dentists, lawyers, and accountants. Most state licenses not only require payment of fees, but are only issued for a given profession or occupation upon showing that you have completed certain educational or experience requirements, or passed certain tests, or some combination of the foregoing. In addition to licensing certain professions and occupations, every business in Mississippi is required to register for and pay a privilege tax, as provided in Section 27-15-11 of the Mississippi Code. Depending on the occupation or type of business, the privilege tax, which is usually paid to the municipal or county government, will vary. Some businesses, such as insurance companies, pay the privilege tax to the state. A partial list of occupations subject to the state privilege tax is as follows:
Anyone opening a new business in the state of Mississippi may be liable for various taxes and should register with the State Tax Commission. To register your business for Income and franchise tax, withholding tax, sales or use tax, and other general business taxes, you should complete the Mississippi Registration Application, Form 70-001-00-1. See the contact information for the State Tax Commission in Section VI(a). For local licensing requirements, see the municipal or county clerk in the city or county where your business is located. For information on state professional licensing requirements in Mississippi, visit the website for the Mississippi Development Authority. See the link to that website in Section VI(c). (c) Income and Franchise Taxes. Mississippi has both an individual income tax and a corporate income tax. It also has a franchise tax on corporations, which is described in the section on taxation of corporations below. TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS The Mississippi individual income tax is imposed at a maximum tax rate of 5%, on income over $10,000. Individual taxpayers generally pay state income tax on their business earnings from a sole proprietorship or on their share of the earnings of a pass-through entity, such as a partnership, S corporation, or LLC. The Mississippi personal income tax return is Form 80-105 or 80-110, which must be filed with the Mississippi State Tax Commission. A single-member LLC owned by an individual, if treated as a "disregarded entity" (a sole proprietorship) for federal tax purposes, will be treated the same for Mississippi income tax purposes. Partnerships, or entities taxable as partnerships, such as LLC's, are not subject to state income taxation in Mississippi, but must file an information return with the State Tax Commission each year, showing each partner's share of taxable income, losses, and credits, on Form 86-105. The partnership information return is due by April 15th of the following year, in the case of a calendar year partnership. While partnerships are not taxed directly, the general partners are jointly liable for state taxes of any partner who fails to file a return or pay his or her taxes on the partnership income. The partnership can avoid this liability by paying tax equal to 5% of its income, which will be treated as a payment of estimated individual income tax by the partners. With permission of the State Tax Commission, a partnership may also elect to file a composite tax return (and pay the tax) for all of its nonresident partners. Individual taxpayers doing business as sole proprietors (or who are partners in partnerships, members of LLC's, or shareholders in S corporations), who have taxable income from the business, will generally be required to make advance payments of estimated Mississippi individual income taxes, on Form 80-300, if their net tax liability (not covered by withholding) exceeds $200. Estimated tax payments are due in four installments, on the 15th day of the 4th, 6th, and 9th months of the taxable year, and the 15th day of the first month of the following year. To avoid penalties for underpayment of estimated tax, you must pay at least 80% of the current year's tax. UPDATE NOTE: The Mississippi corporate income tax is imposed on corporations, other than S corporations, at the same rate as the individual tax -- 3% on the first $5,000 of taxable income, 4% on the next $5,000, and 5% on income over $10,000. The state corporation income tax return is Form 83-105, which must be filed with the Mississippi State Tax Commission by the 15th day of the third month following the end of the taxable year, or by March 15th in the case of a corporation whose taxable year is the calendar year. Corporations are required to make estimated tax payments of their state corporate income tax in advance, if their tax liability for the year exceeds $200. Corporate estimated tax payments are due in advance, in four equal installments, on the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year. The total estimated tax that must be paid in is usually equal to 90% of the actual tax liability for the year, or 100% of the prior year's tax. Penalties of 10% of the underpayment plus 1% per month will be imposed for failure to make the required corporate estimated tax payments on a timely basis. Corporations that do business in Mississippi are also subject to a corporate franchise tax. The franchise tax is computed at the rate of $2.50 per $1,000 of capital stock (including stock issued and outstanding, paid-in capital, surplus, and retained earnings, with certain adjustments and additions). Or, if greater, the tax is computed on the total assessed value of real estate and tangible personal property owned by the corporation in Mississippi. The minimum annual tax is $25. Franchise tax is reported and paid along with state corporate income tax on the combined annual Corporate Tax and Franchise Tax Report, Form 83-105, due by March 15 of the following year in the case of a calendar year corporation. Under legislation enacted in April, 2000, franchise tax may also be applicable to LLC's and to otherwise disregarded S corporation subsidiaries, if they have elected to be treated as corporations for federal tax purposes. As under federal tax laws, S corporations are generally not subject to state income tax in Mississippi, but are subject to the state franchise tax on capital stock. However, if an S corporation has nonresident shareholders, it must pay a 5% tax on their share of income, unless they execute an agreement with the state to pay Mississippi state income tax on their share of the S corporation's taxable income, Form 85-380, Nonresident Income Tax Agreement, which need not be filed but must be kept by the S corporation. S corporations must file an annual income tax and franchise tax return, Form 85-105. Mississippi does not require any separate S corporation election -- a corporation that has elected S corporation status for federal tax purposes is automatically treated as a Mississippi S corporation for so long as the federal S election remains in effect. TAXATION OF LIMITED LIABILITY COMPANIES In Mississippi, a limited liability company (LLC) is taxed in the same manner as it is taxed for federal purposes (as a partnership, generally) thus avoiding the possible double taxation of income that can occur with a corporation. Note that under IRS regulations that became effective in 1997, an LLC may now elect to be treated as a partnership if it has more than one owner, or as a sole proprietorship if it does not, for federal tax purposes. Mississippi law now permits the formation of a one-owner LLC and follows the federal tax treatment of an LLC. Note that it is not always entirely clear whether an LLC is a "single-member LLC" or not, where the "single owner" is a married couple who hold the entire ownership of the LLC in some form of co-tenancy, such as joint tenants with right of survivorship, tenants by the entirety, or as tenants in common. The federal Internal Revenue Service (IRS) has taken a very lenient position in Rev. Proc. 2002-69, where a couple hold the LLC interest as community property, ruling that the IRS will accept whatever choice the couple make, either to disregard the LLC as an entity (treating it as a "single-member LLC") or to treat it as a partnership between the husband and wife. However, Mississippi is not a community property state, so where the LLC is owned by a husband and wife in some form of co-tenancy, it is unclear whether the IRS treatment would be as lenient as for community property owners, since the IRS has not issued any published rulings on whether an LLC can be a disregarded entity if held in one of the various forms of co-tenancy by a married couple, rather than being held as community property. Thus, it is also unclear, where an LLC is owned by a husband and wife as co-tenants, whether Mississippi would treat the LLC as a single-member LLC or as a partnership. If an LLC has elected for federal tax purposes to be treated as a corporation, it will also be treated as a corporation for Mississippi tax purposes, which means it will be subject to both the state corporate income tax and the corporation franchise tax. (d) Sales and Use Tax. Mississippi imposes a general sales tax on retail sales and rentals of tangible personal property at the statewide rate of 7%. Some items, such as farm machinery or automobiles, are taxed at reduced rates. Unlike the sales taxes imposed in most other states, which are nominally imposed on the consumer but collected by the seller, the Mississippi sales tax is a gross receipts tax imposed directly on the seller, as a fee for the privilege of doing business in the state. There are no general local sales taxes, but some local governments have adopted local sales taxes, at varying tax rates, on various tourist service businesses, such as hotel/motel receipts, restaurant sales, and sales made by gift and antique shops in some areas. In 2004, voters in Jackson approved new taxes in the city of 1% on restaurant sales and sales of food and beverages by hotels, plus 3% taxes on the gross proceeds of lodging and on sales by caterers at the new convention center, to be built with the new tax revenues. The new Jackson taxes went into effect in 2005. Sellers are required to obtain a seller's permit and to collect and pay over the sales and use taxes collected to the State Tax Commission. Vendors are allowed a 2% commission (maximum $50 per reporting period or $600 a year for each business location) to help defray the costs of collecting and reporting sales and use taxes. There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In most other states, the exemption is ordinarily available only if a purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. However, in Mississippi, no law or regulation requires the use of resale certificates. Instead, a person claiming resale exemptions must keep invoices, in chronological order, for three years after an exempt sale is made and must make such invoices available for inspection by the State Tax Commission. While sales of computer software are generally taxable, under recent (2008) legislation, sales of software or software services transmitted by the Internet to a destination outside Mississippi, where the first use of such software or software services by the purchaser occurs outside of Mississippi, are exempt from Mississippi sales tax. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Mississippi. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the Mississippi State Tax commission on Mississippi Registration Application, Form 70-001-00-1, which can also be used to register for various other types of state taxes. The sales and use tax law requires any taxpayer who had an average monthly sales and use tax liability of at least $20,000 per month in the preceding year to make a prepayment, or estimated tax payment, by June 25th, equal to at least 75% of the sales and use tax liability for June of that year or of the preceding year. Taxpayers who fail to make the prepayment by June 25th of each year are subject to a 10% penalty on the underpayment. However, effective July 1, 2009, for estimated payments first due June 25, 2010, the $20,000 threshold for required estimated tax payments is increased to $50,000. (This change was originally to have gone into effect on July 1, 2008.) For more information on Mississippi sales and use tax registration and compliance, see contact information for the offices of the State Tax Commission in Section VI(a). (e) Real and Personal Property Taxes. In Mississippi, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's property taxes as they come due. Note that, for property financed with industrial bonds in Mississippi, there is a ten-year exemption from property taxes. In addition, other manufacturing facilities are generally exempted from property taxes, except school taxes, for ten years, as well. Mississippi localities may also impose personal property taxes on tangible personal property, including business inventories, which are not fully exempted, as they are in many other states. ("Personal property" is any kind of property that is not real estate.) However, cities or counties may exempt manufacturers' inventories if held for sale only to wholesalers, and not for retail sale to the final consumer. While Mississippi generally taxes tangible personal property, it does not impose a property tax on most kinds of intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets, or on computer software. Certain types of intangible property, such as franchises, money on hand, or notes or mortgages that bear interest at more than the legal rate, are included in the business personal property tax base, but there is no state-administered intangibles tax as there is in some other southern states. (f) Other Business Taxes. Mississippi imposes a number of excise and other taxes on businesses, some of which may affect you. These include:
While Mississippi has an estate tax, it is a "pick-up tax" based on the allowable amount of the federal estate tax credit for state death taxes. Since that credit amount is currently zero (in 2008), no Mississippi estate tax return is required for persons dying on or after January 1, 2005. However, the federal credit for state death taxes may be reinstated in the near future, in which case the Mississippi estate tax would again become applicable. (g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. Unlike nearly all other states, Mississippi law does not have any requirement for sole proprietorships or partnerships to register fictitious names. However, a foreign corporation doing business under a fictitious name must register the name with the secretary of state. Mississippi law also provides for the (optional) registration with the secretary of state of a trademark or service mark. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Mississippi imposes a state income tax on the income of individuals, you will need to also withhold Mississippi income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the State Tax Commission, on Mississippi Registration Application, Form 70-001-00-1. The income tax withholding law requires any taxpayer who had an average monthly withholding tax liability of at least $20,000 per month in the preceding year to make a prepayment, or estimated tax payment, by June 25th, equal to at least 75% of the withholding liability for June of that year or of the preceding year. Taxpayers who fail to make the prepayment by June 25th of each year are subject to a 10% penalty. However, effective July 1, 2009, for estimated payments first due June 25, 2010, the $20,000 threshold for required estimated tax payments is increased to $50,000. (This change was originally to have gone into effect on July 1, 2008.) For more information on Mississippi income tax withholding and registration requirements for employers, see the contact information for the offices of the Mississippi State Tax Commission, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Mississippi unemployment tax are required to register with the Mississippi Department of Employment Security (MDES) on Form UI-1 for unemployment tax purposes. New employers are required to pay tax at a rate of 2.7% in 2008 on the first $7,000 of wages paid to each employee. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. Mississippi employers subject to the unemployment tax are required to post the job insurance (unemployment insurance) poster in the workplace, which can be obtained from MDES. This is the only state-mandated poster, other than the workers' compensation poster, that employers in Mississippi are required to display in the workplace. All state unemployment taxes are imposed upon you as the employer, and, under Mississippi law, cannot be charged to your employees or withheld from their wages. For more information on your Mississippi unemployment tax obligations as an employer, see the contact information for the offices of the Mississippi Department of Employment Security, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Mississippi, virtually all businesses with five or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor, partner in a partnership, or employee of a corporation who owns 15% or more of the stock of the corporation may elect not to be covered and, if so, is not counted towards the mandatory coverage threshold of five employees. The law does not include any exemption for members of an LLC, however. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees. Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance. As an employer, you must notify injured employees of their benefits and post a notice, Notice of Coverage, in the workplace informing your employees of their workers' compensation coverage. A copy may be downloaded from the website of the Workers' Compensation Commission (see the link to that site in Section VI(c)). For more detailed information regarding your obligations as an employer under the Mississippi workers' compensation laws, contact your insurance carrier or see the contact information for the offices of Mississippi Workers' Compensation Commission, listed in Section VI(a). (d) State Wage and Hour Laws. Unlike most states, Mississippi does not have a minimum wage law governing the hourly wage that you must pay to your employees. However, in most cases, your business will be subject to the federal minimum wage and overtime laws, and thus required to pay at least $6.55 an hour beginning July 24, 2008 (and $7.25 as of July 24, 2009), plus pay time-and-a-half for overtime hours, for any non-exempt employee who works more than 40 hours in a week. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws in Mississippi, which prohibit hiring children under age 14 entirely in certain mills, factories, canneries or manufacturing facilities, and prohibit hiring children under 16 in such work unless the child is complying with the compulsory school attendance law. Children over 14 and under 16 may not work more than 8 hours a day or 44 hours a week in such locations. They also may not work in any such establishment between the hours of 7 p.m. and 6 a.m. As there is no state department of labor in Mississippi, enforcement of state child labor laws is by the county sheriffs and county health officers. (e) State Occupational Safety and Health Laws. Employers in Mississippi must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. Like roughly half of the states, Mississippi does not have its own job safety enforcement agency. Instead, the federal Occupational Safety and Health Administration (OSHA) is responsible for enforcing health and safety standards in Mississippi. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a free safety consultation from the state program, operated by Mississippi State University, and they detect violations, you will not be cited if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer and required posters, see the contact information for the Jackson offices of OSHA, or, for possible on-site safety consultations, the Center for Safety and Health at Mississippi State University, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Mississippi labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to employees. Under state law, every business engaged in manufacturing of any kind in the state and which employs 50 or more employees is required to make full payment to employees for services performed as often as once every two weeks or twice during each calendar month, or on the second and fourth Saturday, respectively, of each month. Such wage payment or settlement must include all amounts due for labor or services performed up to not more than 10 days previous to the time of payment, generally. This requirement does not apply to an employee who is employed in a bona fide executive, administrative, or professional capacity. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Mississippi has a right-to-work law, which prohibits an employer from denying a person the right to work on account of their membership or non-membership in a labor union. (3) State anti-discrimination laws. Mississippi does not have a state anti-discrimination agency or its own anti-discrimination laws. Federal equal employment opportunity laws are administered in Mississippi by the federal Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Justice. (4) Reporting new hires. Under federal welfare reform laws, employers in all states now have to report newly-hired (or rehired) employees to an appropriate state or national agency (the Mississippi State Directory of New Hires for Mississippi employers). Federal law requires such reports to be made within 20 days after the date of hire. However, Mississippi requires that such reports be filed within 15 business days after an employee is hired. The Mississippi Department of Human Services administers this program, but processing of the information is done outside the state, in North Carolina. See the address information in Section VI(a) for reporting new hires. (5) Drug and Alcohol Testing. The state requires insurance companies to establish safety programs for their insured businesses, which must include a written policy for drug and alcohol testing that also explains the rights of a worker under the Workers' Compensation Law. Under such policy, if the employer has probable cause to suspect that an employee's injury was occasioned primarily by the intoxication of the employee or by the illegal use of any controlled substances that affected the employee, to the extent that the employee's normal faculties were impaired, the employer may require the employee to submit to a test for the presence of any controlled substances or alcohol in his or her system. Employers who opt into the insurer's drug and alcohol testing program in accordance with the legal guidelines will receive a qualified immunity from civil lawsuits based on their actions taken in conformity with the law. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Unlike most other states, Mississippi does not have a single agency to whom you can go to handle all your licensing and permitting requirements for your business under the laws of Mississippi. Accordingly, you will need to contact the various Mississippi agencies that are mentioned in this book or listed below on an individual basis, to obtain needed forms, official posters, information, and other assistance from each such agency. A list of addresses and other contact information for such key agencies is set forth below for your convenience. BUSINESS STARTUP INFORMATION. A key agency that can provide helpful information on getting your business up and running in Mississippi is: Mississippi Development Authority Be sure to request their helpful publications, including the Entrepreneur's Tool Kit, which includes booklets on state reporting requirements and financing sources for businesses in Mississippi. SECRETARY OF STATE. Contact the office of the secretary of state for information on:
Secretary of State TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the Mississippi State Tax Commission, which is the main tax collection agency in Mississippi. Also register with this agency as an employer, for state income tax withholding and sales tax purposes, on Mississippi Registration Application, Form 70-001-00-1. Mail your completed tax/business registration form to: Mississippi State Tax Commission (Note that in 2009, the State Tax Commission was reorganized into a Department of Revenue, which will be responsible for tax matters, and an independent Board of Tax Appeals to hear administrative appeals.) STATE LABOR LAWS. There is no state labor law agency in Mississippi. State child labor laws in Mississippi are enforced by the county sheriffs and county health officers. STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Mississippi sales and use tax law, from the State Tax Commission at the address listed above for that agency. EMPLOYER WITHHOLDING. Contact the State Tax Commission to register as an employer, for purposes of Mississippi income tax withholding. STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject. Mississippi Department of Employment Security MISSISSIPPI NEW HIRE REPORTING. Report all newly hired or rehired employees within 15 days to the Mississippi State Directory of New Hires. You can call this agency for more information at the toll-free number below, and either fax your reports to the toll-free fax number listed below, or mail the reports to the address listed below (which is correctly shown as Raleigh, North Carolina). See the website link for Mississippi New Hires Reporting in Section VI(c), for more information or for online reporting of new hires. Mississippi State Directory of New Hires WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information: Mississippi Workers' Compensation Commission STATE OSHA PROGRAM. There is no state OSHA program in Mississippi. The federal government provides federal OSHA enforcement instead. For required posters and information on federal occupational safety and health laws that affect you as an employer in Mississippi, contact the OSHA Jackson Area Office, at: U.S. Department of Labor/OSHA Or, for workplace safety consultation services, contact: Center for Safety and Health (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Mississippi to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Mississippi Small Business Development Center (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies in Mississippi also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Mississippi. Since new sites are appearing frequently, you might also want to search for other Mississippi government Web sites by using one of the popular Internet search engines, such as Google or Yahoo. To start your Internet search for Mississippi government information, you may want to begin with the following Internet sites: State of Mississippi home page: Mississippi State Tax Commission (tax information, tax form downloads): Mississippi Department of Employment Security (unemployment taxes): Mississippi Development Authority (information on starting or relocating a business in Mississippi): Secretary of State home page: Mississippi Workers' Compensation Commission: Mississippi New Hire Reporting: (d) Financing Sources. For information and help on locating financing for your small business, contact the U.S. Small Business Administration office in Mississippi, or contact the Mississippi Development Authority, which administers the Mississippi Capital Access Loan Program (MSCAP) and other state financial assistance programs for small businesses. The address of the SBA Office in Mississippi is: U.S. Small Business Administration |
Copyright © 2008 Michael D. Jenkins
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