Economic Development Incentives in Mississippi

Almost all of the state and local incentives available in Mississippi require advance planning and approval by various state and local authorities, such as the Mississippi Department of Revenue (the “Department of Revenue”), the Mississippi Business Finance Corporation (the “MBFC”), the Mississippi Development Authority (the “MDA”) and the Mississippi Department of Transportation (the “MDOT”).  For an entity considering investing in or locating a business in Mississippi, it is critical that it seek advice on all of the issues discussed herein as well as on the approval processes of each relevant state or local authority.  The following summarizes the most commonly used incentives available in Mississippi for the location of new or the expansion of existing projects.

Tax Credit Incentives

Ad Valorem Tax Credit

The Ad Valorem Tax Credit is an income tax credit equal to the ad valorem tax paid on the commodities, goods, wares or merchandise that the following types of businesses located in Mississippi hold for resale: manufacturers, processors, distributors, wholesalers, and retailers.  The credit is limited to the lesser of the amount of the following: the ad valorem tax actually paid, $5,000.00, or 100% of the income tax liability attributable to the income derived from that location.

The Ad Valorem Tax Credit is available only for the year in which the ad valorem taxes are actually paid.  Within the limitations discussed herein, this tax credit may not be carried forward in the event there is any excess and unapplied credit.  Only the business enterprise or corporation that actually paid the ad valorem tax is eligible to take the credit.

Broadband Technology Tax Credit

Broadband Technology Tax Credits are credits that can be applied to state income or franchise tax of telecommunications businesses. These credits are provided to entities to encourage the deployment of high-speed internet access throughout the state, with an emphasis on rural areas.  Broadband Technology Tax Credits are earned based on a percentage of the cost of equipment used in the deployment of broadband technology in the state. Annual credit amounts are calculated as a percentage of eligible expenditures, based on equipment location, and is available for ten years.  The credits can be claimed against income or franchise tax, but the total amount of credits taken over the ten year period cannot exceed 100% of the cost of the equipment.  The credit percentage amount allowed per year is based on the development ranking of the county. 

Child Dependent Care Tax Credit

The Child Dependent Care Tax Credit is allowed to any employer providing dependent care for its employees during the employee’s working hours.  The credit allowed is 50% of qualified expenses. This credit can offset up to 100% of the income tax due from the entity.  Any excess can be carried forward for up to five years.

Export Port Charges Tax Credit

There is an income tax credit equal to charges a business pays for exporting cargo through certain ports in Mississippi.

Import Port Chagres Tax Credit

There is also an income tax credit equal to the charges an eligible business pays for importing cargo through certain Mississippi ports.

Jobs Income Tax Credit

The Jobs Income Tax Credit is available for five years to manufacturing, processing, distributing, wholesaling, research/development and warehousing businesses that increase employment by constructing a new facility or expanding an existing facility.  This credit is not available to businesses that maintain existing employment by modernizing or re-opening an existing facility, nor is it available to businesses that move from one location within the state to another location within the state without increasing employment.

The amount of the Jobs Income Tax Credit available is based upon the number of new jobs created and the Mississippi county where the jobs are created.  The Department of Revenue ranks the counties in Mississippi each year into three tiers:  Tier Three (less developed), Tier Two (moderately developed), and Tier One (developed).  The credit is calculated using only full-time positions; part-time jobs cannot be aggregated to add up to a full-time job.  In addition, the employees must be employed in Mississippi and be subject to Mississippi withholding tax.

For a business to qualify in a Tier One county, it must increase its job count by at least twenty in the relevant year.  The income tax credit in Tier One counties is equal to 2.5% of payroll.  In Tier Two counties, the minimum annual increase of the number of jobs by an eligible business is fifteen, and the income tax credit is 5% of payroll.  For Tier Three counties, the minimum annual increase in the number of jobs is ten, and the income tax credit is equal to 10% of payroll.

The credit is allowed each year for the jobs created, plus any unused credit that has been carried forward.  The Jobs Tax Credit can only reduce up to 50% of the income tax due; otherwise, the unused portion must be carried forward.  In addition, after the taxpayer has qualified for the credit, the credit is not allowed for a year if the net employment increase falls below the minimum required for qualification.

The Jobs Income Tax Credit is available for the following types of business but requires special designation from the MDA: air transportation and maintenance facilities, movie industry studios, telecommunication enterprises, data or information processing companies, computer software developers, any technology intensive facility, recreational facilities that impact tourism, and final destination or resort hotels with more than 150 guest rooms.  No business created for the transportation, handling, storage, processing or disposal of hazardous waste is eligible to receive the Jobs Income Tax Credit.

Manufacturing Investment Tax Credit

Existing manufacturers that have operated in Mississippi for two or more years may be eligible for investment tax credits that can be applied to the entity’s state income tax liability.  To qualify, an existing manufacturer must invest $1,000,000 or more in additional buildings and/or equipment used in the manufacturing operation. The investment credit is calculated as 5% of the eligible investment for a project.

Mississippi Equity Investment (New Markets) Tax Credit

The Mississippi Equity Investment Tax Credit allows a credit to Mississippi income or insurance premium tax that is available for eligible investments made by community development entities (“CDEs”) in designated low income census tracts in the state, as defined by the U.S. Census Bureau. These credits are state credits that act as companion credits to the Federal New Markets Tax Credits (“NMTC”) Program.  Mississippi allows a state credit equal to 24% of the Qualified Equity Investment (“QEI”) in addition to the credits awarded through the federal program.  Equity Investment Credits are calculated as 8% of the QEI and are available annually for two additional years. Credits are based on a Mississippi investment being maintained for a minimum of seven years, as required under the federal program. If all state and federal program requirements are not met, all credits may be recaptured by the Department of Revenue.

The maximum investment eligible for credits on any project cannot exceed $10,000,000.  The total Mississippi Equity Investment Credits that can be awarded is capped at $15,000,000 per year.  Credits can be used to offset up to fifty percent of the entity’s income tax liability after all other credits have been taken, and unused investment tax credits can be carried forward up to five years.  Mississippi Equity Investment Tax Credits must be awarded and certified by the MDA prior to funding.  Usage of credits is administered by the Department of Revenue.

National or Regional Headquarters Tax Credit

The National or Regional Headquarters Tax Credit is an income tax credit available for a five year period.  The credit amount ranges from $500.00 to $2,000.00 for each position assigned to the national or regional headquarters of a business created in or transferred to Mississippi.  A minimum of thirty-five new headquarters jobs must be created to receive this credit.  In addition, these jobs must include officers and other high level employees as well as the support staff normally associated with a business headquarters.  However, no business enterprise for the transportation, handling, storage, processing or disposal of hazardous waste is eligible for this credit.

Generally, the amount of the National or Regional Headquarters Tax Credit is equal to $500.00 for each full-time position.  However, the credit is greater if salaries for the positions created are higher than the average annual state wage.  For each new, full-time position whose salary is 125% of the average annual state wage, the credit is $1,000.00.  For each new, full-time position whose salary is 200% of the average annual state wage, the credit is $2,000.00.

The National or Regional Headquarters Tax Credit is capped at 50% of the income tax liability due.  Any unused portion of the credit can be carried forward for up to five years beyond the original year in which the excess credit exceeded 50% of the income tax liability due.

Research and Development Skills Tax Credit

The Research and Development Skills Tax Credit is available for a five year period.  The credit available is equal to $1,000.00 per year for manufacturing, processing, distributing, wholesaling, research/development and warehousing businesses (as well as other businesses determined by MDA).  The credit applies to each position requiring research or development skills, and employees in these positions must be engaged in research and development activity.  In addition, qualifications for the positions must include a bachelor’s degree in a scientific or technical field from an accredited four year college or university.  Finally, the position must be in the employee’s area of expertise and offer compensation at a professional level.

The Research and Development Skills Tax Credit is for full-time positions only and part-time jobs cannot be aggregated to add up to a full-time job.  In addition, the employees must be employed in Mississippi and be subject to Mississippi Withholding Tax.

The Research and Development Skills Tax Credit is capped at 50% of the income tax liability due.  Any unused portion of the credit can be carried forward for up to five years beyond the original year in which the excess credit exceeded 50% of the income tax liability due.

RED (Rural Economic Development) Tax Credit – MBFC Revenue Bond Debt Service

The RED Tax Credit is an income tax credit equal to the debt service paid on industrial revenue bonds issued by the MBFC for approved businesses that receive the proceeds of such bonds.  The MBFC was created to finance economic development projects to induce the location of economic development projects in Mississippi.

The RED Tax Credit is equal to the total amount paid to service the debt but limited to 80% of the income tax liability attributable to income generated by the economic development project.  Under the RED credit, a business’ income is determined by a formula adopted by the MBFC.  Currently, excess RED Tax Credits may be carried forward to three years following the year in which the credit is earned.

Skill Training Tax Credit

The Skill Training Tax Credit is an incentive for a business to offer training to their Mississippi employees.  The credit equals 50% of the amount of expenses the business incurs in implementing the training.  The credit is allowed up to 50% of the income tax liability attributable to the income derived from the operations in Mississippi for that year.  The amount of training credit cannot exceed $2,500 per Mississippi employee per year.  The credit is not refundable.  It can only be used against the income tax liability. Any excess credit amount can be carried forward for up to five years from the original year in which the excess credit could not be used. It is more advantageous to use the oldest year's unexpired credit first.

Economic Development Incentives

Income Tax Exemption for Growth and Prosperity Areas

The Growth and Prosperity Program is an incentive that provides an exemption from income tax for certain businesses that locate in growth and prosperity areas.  For a county to receive a GAP designation the county must have an unemployment rate that is 200% of the state’s annual unemployment rate or 30% or more of its population must be below the federal poverty rate.

Once MDA has certified an area as a growth and prosperity area, eligible businesses can be approved by MDA for benefits under the Growth and Prosperity Program.  The businesses eligible to seek approval from MDA include new or expanded: (1) industry for the manufacturing, processing, assembling, storing, warehousing, servicing, distributing or selling of any products or goods, including products of agriculture; (2) enterprises for research and development, including, but not limited to, scientific laboratories; or (3) such other businesses or industry as will be in furtherance of the public purposes of this chapter as determined by the MDA and which creates a minimum of ten jobs; provided however that  business enterprise does not include retail or gaming businesses or electrical generation facilities.

Advantage Jobs Incentive Program

The Advantage Jobs Incentive Program is a rebate program designed to encourage businesses that create new quality jobs to locate in Mississippi.  The program provides for a rebate of a percentage of the company’s payroll to qualified companies for a period up to ten years.  Jobs must meet or exceed the average annual wage of the state or the county in which the company locates, whichever is lower.  Data or information processing enterprises are eligible for the incentive if they provide an average annual wage of 100% of the lesser of the average county or state wage.  In conjunction with the wage requirements, such data or information processing enterprises must also create 200 new jobs.  In addition, any business except retailers, certain services, and gaming establishments that provide an average annual wage of 110% of the lesser of the average county or state wage and creates twenty-five new jobs is also eligible for the incentive.

Corporate Franchise Tax Exemptions

In-Lieu Fee for Major Economic Projects

Under the Major Economic Impact Act, an incentive in the form of a negotiated fee in lieu of franchise tax (minimum of Twenty-Five Thousand Dollars ($25,000.00)) and exemption for the regularly calculated franchise tax is available for businesses operating a major capital project.

Exemption for Growth and Prosperity Areas

The Growth and Prosperity Act provides an exemption from the corporate franchise tax for those particular businesses discussed herein that locate in growth and prosperity areas.

Property Tax Incentives

Industrial Exemptions

In Mississippi, a county board of supervisors may grant a ten year exemption of ad valorem property taxes for certain projects.  The exemption applies to all ad valorem property taxes except state ad valorem property taxes and taxes used for school purposes.

For certain projects that involve an investment of $100,000,000 or more, a county, MDA and an eligible business may enter into a fee-in-lieu of ad valorem property taxes.  The fee-in-lieu can be granted for up to ten years and cannot be less than one-third of the ad valorem tax levy that would otherwise be levied against the project.

Free Port Warehouse Exemption

Warehouses or other storage facilities can apply to the local governing authority for a license to operate a free port warehouse.  After receiving the license, the recipient can apply to same local governing authority to be exempt from all ad valorem property taxes on part or all of the assessed value of the personal property with is consigned or transferred to such warehouse or storage facility.

Exemption for Growth and Prosperity Areas

The Growth and Prosperity Act provides an exemption from the ad valorem property tax for those particular businesses discussed herein that locate in growth and prosperity areas.

Sales and Use Tax Incentives

Exemption for Construction or Expansion

This sales and/or use tax incentive was created in order to encourage construction or expansion of manufacturing facilities, processing facilities, technology intensive enterprises and data or information processing enterprises within the State of Mississippi.  Businesses that construct or expand such facilities are eligible for an exemption from some sales and/or use taxes on eligible machinery, equipment purchases and the component materials used in the construction, addition or improvement to a building and on the machinery and equipment used therein.  To be eligible for the exemption, the relevant items must be sold directly to, billed directly to and paid for directly by the business received the exemption.

The exemption applies to a period beginning with the date such items are purchased for the expansion or construction and running through three months after the initial start date.  The amount of the exemption depends on where the facility is located within Mississippi.  For Tier One and Tier Two counties, the exemption is 50% of the sales and/or use tax on eligible machinery and equipment.  The exemption is 100% for Tier Three counties and also includes an exemption for component building materials.

The contractor’s tax is imposed at a rate of 3.5% on the contractor who performs the construction or expansion work on the relevant facility.  The tax covers the gross proceeds of commercial construction activities and is not passed on to the customer except as part of overhead costs.  The contractor’s tax must be built into the contract amount computed by the contractor and cannot be broken out as a separate item.  If the component materials or the machinery and equipment (purchases covered by the exemption) are purchased through the contractor within the construction contract and not purchased directly through the business receiving the exemption, then the exemption is lost on any items included in the construction contract.

National or Regional Headquarters

A sales and/or use tax incentive is also available for eligible business that create or transfer its national or regional headquarters to Mississippi.  The same rules which apply to the income tax credit for a transfer of a national or regional headquarters apply to this sale and/or use tax exemption.  In short, businesses that construct or expand headquarters facilities are eligible for an exemption of sales and/or use taxes only on the component materials used in the construction, addition or improvement to a building and on the machinery and equipment used therein.

Sales/Use Tax Exemptions for Bond Financing

The MBFC administers a variety of financing programs that are intended to promote economic growth and increase employment in Mississippi.  Through these programs, certain qualified businesses may obtain bond financing for construction or expansion in Mississippi.  Businesses that use bond proceeds to purchase items such as machinery and equipment and/or component building materials may be exempt from the sales and/or use tax on such items.

To be eligible for the exemption, the relevant items must be sold directly to, billed directly to and paid for directly by the business receiving the exemption.  The exemption applies to the retail rate of machinery and equipment - either the 7% general rate or the 1½% manufacturing rate, as applicable.  The exemption does not cover tagged vehicles, ongoing expenses, supply items or the contractor’s tax.

Exemption for Business in Growth and Prosperity Areas

The Growth and Prosperity Act provides an exemption from certain sales and use taxes for those particular businesses discussed herein that locate in growth and prosperity areas.