Lawmakers agree to end the tax on work in Mississippi, potential error could lead to new negotiations

• The House voted to concur on amendments made by the Senate to HB 1 Thursday morning, but questions linger about the Senate’s proposed “triggers” for income tax elimination. The bill was held on a motion to reconsider.

The Mississippi House of Representatives has voted 92-27 to concur with the Senate’s amended version of HB 1, which phases out the state income tax, reduces the sales tax on groceries and addresses transportation funding and the future of the state employees retirement system.

Pending a motion to reconsider, the legislation will be sent to the Governor’s desk for his signature.

“Let’s end the tax on work once and for all in Mississippi,” State Rep. Trey Lamar (R) said while making the motion to concur on the floor Thursday morning. 

Lamar said the House has been trying to eliminate the income tax for over a decade. 

As previously reported, the Senate’s version of HB 1 cuts the current income tax rate of 4 percent by 0.25 percent each year from 2027 until 2030 automatically, effectively bringing that rate to 3 percent by 2030. Further cuts to the income tax would be based on the performance of the state’s economy from 2031 onward. 

Following passage, scholars at the Tax Foundation pointed out a potential error in the trigger language passed by both chambers. As written, new tax cuts would be triggered starting when the state has surplus revenue that exceeds 0.85 percent of 1 percentage point of income tax revenue. In effect, this means new cuts would take effect with as little as a few million in surplus. Senate leadership has previously explained the triggers as requiring far higher surpluses.

HB 1 also includes a two-cent tax cut on the sales tax for groceries that begins on July 1 of this year, bringing that rate to 5 percent. Cities rely heavily on sales tax diversions, of which 18.5 percent of all sales taxes collected by the state goes back to cities. The bill includes an increase in that diversion rate for grocery tax collections to 25.9 percent.

The legislation also increases the fuel excise tax from 18 cents per gallon to 27 cents per gallon, phased in by three cents per year for three years. That increase in funding will be distributed to the Mississippi Department of Transportation for infrastructure needs.

There is also a section of the bill that addresses the state employee retirement system, or PERS. HB 1 will establish a Tier 5 for newly hired state employees after March 1, 2026. In that plan, 4 percent of their retirement savings would be placed in a defined benefit plan and 5 percent would go to a defined contribution plan, similar to a 401K.

HB 1 also ends the Special Legislative Retirement Program, or SLRP, for incoming legislators elected after March 1, 2026. 

There was some opposition to the concurrence on the bill Thursday.

State Senator Angela Hill (R) said the increase in taxes will negate any cuts to the grocery tax, since increases in the cost of diesel typically mean increases in the cost of items shipped across the country, including groceries. 

“I did not vote for that bill,” Hill told Magnolia Tribune after the House concurred.

State Rep. John Hines (D) expressed his concern that an increase to the gas tax will hit the poorest Mississippi residents. He also described how there are institutions of higher learning that cannot provide dormitories and law enforcement training facilities that have to operate with damaged roofs and faulty sewage systems as the budget stands today. 

“The torch of the burden is yours to bear,” Hines said while speaking on the bill. 

State Rep. Omeria Scott (D) said the volatility in Washington D.C. means the state could be left holding the bag if cuts to Medicaid occur. She said any federal cuts will lead to cuts in assistance to several medical waiver programs such as dialysis, physical therapy and prescription medications, to name a few.

“Now the question is, as it was the other day, can you make it up?” Scott asked. “We are the poorest state in the nation, we cannot make it up.”