Multistate: Certain States Consider Repeal of Major Taxes

This year, certain state legislatures are advancing legislation that would repeal some major state taxes. In Mississippi, House Bill 1439— the Mississippi Tax Freedom Act of 2021—would phase-out the personal income tax over a number of years by incrementally increasing the personal exemption. To offset the revenue loss, the measure would increase the state’s current general sales and use tax rate from 7.0 percent to 9.5 percent and increase the tax rates applicable to manufacturing equipment, aircraft and vehicles, and other types of business inputs. The sales and use tax rate applied to food for human consumption would be reduced over time from 7.0 percent to 3.5 percent. The corporate income tax would remain in effect. Mississippi House Bill 1439 has passed the House and is pending in the Senate. Mississippi Governor Reeves has recommended phasing out the income tax but did not propose an offsetting sales tax increase.

In Oklahoma, House Bill 2083 was approved by the House on March 11, 2021. This bill would phase-out the 6.0 percent corporate income tax by allowing a deduction for a certain percentage of total taxable income each year, beginning with 20 percent for the 2022 tax year. Proponents of the measure are arguing it is needed to compete with Texas. 

Finally, in West Virginia, Governor Jim Justice has requested that the legislature consider measures (Senate Bill 600 and House Bill 2027) that would make significant reforms to West Virginia’s overall tax structure.  The proposals would reduce by 60 percent the rates applied to “nonbusiness personal income,” (i.e., wages, salaries, unemployment compensation and certain retirement income). Rates as applied to interest, dividends and business personal income would remain unchanged. In addition, the consumer’s sales and service tax rate would be increased from 6.0 percent to 7.9 percent, and the sales tax base would be expanded to include new products and services. Specific sales tax exemptions currently in place would be repealed, including exemptions that apply to certain sales of computer software and hardware, data processing services, and digital advertising as well as certain forms of traditional newspaper, television and billboard advertising. The bill would also tax certain professional services, such as legal and accounting services. A new excise tax would be imposed on certain luxury items costing over $5,000. This tax would be in addition to the sales and use tax, and marketplace facilitators, as well as retailers, would be required to collect and remit the luxury tax. Taxes on cigarettes, alcoholic beverages, and soft drinks would also be increased, and the severance tax regime that applies to coal and other natural resources would be revised. Most of the changes would take effect on January 1, 2022. Please stay tuned to TWIST for future updates on these proposals.