House inventory tax credit shields local revenue

By Bobby Harrison/NEMS Daily Journal

JACKSON – Legislation that would provide businesses state money to offset the taxes they pay to local governments on their inventory passed the Mississippi House on Tuesday.
Business groups for years have tried to eliminate the inventory tax, saying it hurt economic development. House Ways and Means Chair Jeff Smith, R-Columbus, said Mississippi is one of only eight states to levy a tax on business inventory.
The problem is that the tax is levied by local governments and it would take a sizable increase in other property taxes to offset its elimination.
Under the proposal passed 84-33 in the House, local governments will continue to levy the tax, but businesses will be able to claim the exemption on a dollar-for-dollar basis on their state income tax returns.
“This method does not affect counties or cities one iota,” Smith said.
Smith conceded that when fully enacted in 2019, it will have an impact of about $120 million on the state general fund. The legislation will have no impact on the general fund until 2014 when only a fraction of the inventory tax can be offset on state tax returns, costing the general fund about $7 million.
The percentage of the tax levy that can be claimed on the state returns will be increased each year until full enactment in 2019.
Opposition to the proposal centered around the general fund impact. Smith argued that the tax exemption will spur economic growth, resulting in more companies expanding, thus offsetting the impact.
Rep. Bob Evans, D-Monticello, who opposed the legislation, said, “We know what we are going to lose, but we are not sure what we are going to gain” in tax revenue. Rep. Kelvin Buck, D-Holly Springs, said the change would make it harder to meet general fund obligations to already strapped local school districts and higher education.
Rep. Cecil Brown, D-Jackson, tried unsuccessfully to amend the bill to prevent the tax exemption from going into effect until the federal Congress lifts a ban on states imposing a tax on Internet sales. Smith opposed the amendment, but the Ways and Means chair said he would favor taxing Internet sales if Congress lifts the ban.
The bill now goes to the Senate where similar proposals have passed in previous years.

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