The House did not bring up a bill to make cuts to the state’s individual income tax but did offer legislation to speed up business tax deductions.
Update – February 22, 2023:
The Mississippi Senate chamber passed a companion bill to the House’s expensing bill in SB 3101 on Wednesday. The legislation creates the Mississippi Full Expensing Tax Reform Act of 2023 and mirrors the language in the House’s bill.
Empower Mississippi CEO Grant Callen commended the Mississippi House of Representatives for passing House Bill 1733, and the Mississippi Senate for passing Senate Bill 3101, both of which will provide businesses the ability to deduct the cost of equipment in the year it is put
into service.
“These bills will encourage businesses of all sizes to grow by investing in equipment and other items that will allow them to expand their capacity, hire more employees, and contribute to growing our state’s economy,“ said Grant Callen, CEO of Empower Mississippi. “Because only one other state has taken this step, this change in our law will make Mississippi more attractive to existing businesses that want to stay and grow, as well as to those looking to move from other states.”
For an additional look at what the bill would do, check out “A Tax Cut with No Revenue Loss – and More Jobs”
Previous:
The Mississippi House of Representatives dropped a bill prior to an appropriations deadline to increase tax deductions for businesses on depreciation.
While the anticipated income tax cut bill did not come forward, the Ways and Means Committee did take up HB 1733. The bill will allow for a full and immediate deduction on an investment for a business in the same year that the investment is made. This would replace incremental deductions on a depreciation schedule.
The bill reads:
For the purposes of computing income tax for tax years beginning after December 31, 2022, a taxpayer may treat specified research or experimental expenditures that are paid or incurred by the taxpayer during the tax year in connection with the taxpayer’s trade or business as expenses that are not chargeable to the capital account. Such expenditures so treated shall be allowed as an immediate deduction. Such expenditures shall remain allowable as a full and immediate expense deduction in the year in which the expenses are incurred notwithstanding any changes to the federal Internal Revenue Code related to the depreciation of such specified research or experimental expenditures.
When introducing the bill to the Committee, State Rep. Trey Lamar (R), the committee chairman, said some of the lawmakers may recall what is commonly referred to as the Trump tax cut or the tax plan from 2017. Federal law was changed with the Tax Cuts and Jobs Act to allow for businesses to expense items that could depreciate. However, those provisions will begin to phase out over the next few years.
“There were lots of parts to it,” Lamar said. “One of the parts was where the tax plan authorized additional, what I would refer to as, bonus depreciation or may commonly be referred to as business expenses on certain types of equipment.”
Lamar explained that what’s not as commonly known is the many parts of that tax plan that phase out in the next year or so.
“However, the state of Mississippi did not have a similar depreciation schedule or business expense schedule,” Lamar said.
He added that this bill would carry forward the same depreciation and business expenses and codify that into state law. He did not anticipate that this change would cost the state much, if any money.
The bill would leave it up to the business or taxpayer if they choose to take advantage of the full and immediate deduction or move forward with incremental deductions on depreciation. This change would not impact the previous tax year (2022), meaning deductions could be taken when filing taxes in 2024.
The legislation would not change the “amount” that a business can deduct, but the timing of which it is done. If a business takes the immediate and full deduction the year of a purchase, that same deduction cannot be taken the next year.
There are also special allowances for qualified improvement properties and specified research or experimental expenditures.
State Director for the NFIB, Dawn McVea said passing tax reform is critical to small businesses in Missisisppi.
“HB 1733, which cleared the House on Tuesday, would let businesses take a full deduction on the cost of new assets in the year the purchase is made,” sad McVea. “HB 1733 is commonsense legislation that would ease the financial pressure on Main Street businesses struggling to recover from the economic setbacks that began with the arrival of the pandemic in 2020. On behalf of our members, I want to thank the House for passing this important legislature and encourage the Senate to support it as well.”
The language of the bill specifically targets a tax cut on depreciation. This is an allowance for any wear and tear of property that is used in a business. This could include deprecation of buildings, vehicles, equipment or tools, meaning there could be a tax deduction for a business when purchasing an item that is used to render their services.
Current law recognizes business expenses as any reasonable cost incurred for operating a business from one year to the next. These expenses can include salaries, services rendered, travel, or meals and lodging while working. What is not considered a deduction is expenses incurred in connection with earning and distributing nontaxable income.
The bill would immediately go into law with an effective date of January 1, 2023.
Sarah Ulmer
