Inventory tax phase-out passes committee

By Bobby Harrison/NEMS Daily Journal

JACKSON – Legislation that would phase out the tax that companies pay to local governments on their inventory passed the House Ways and Means Committee on Thursday.
But Ways and Means Chair Jeff Smith, R-Columbus, said he would not bring the bill up before the full House until he receives a study on the impact it would have on the state general fund.
Some Democrats on the committee wanted the legislation tied to a possible tax on Internet sales. Federal law currently blocks the state from collecting the sales tax on retail items sold over the Internet. There is some speculation that the ban might be lifted.
The Department of Revenue estimated at one point the state was losing more than $300 million annually in revenue on purchases made by Mississippians over the Internet. The phase out of the inventory tax – by 2019 under the bill pending in the House – would be a $126 million impact to the state general fund, according to information provided to the Ways and Means Committee.
Smith said he does not think it would be fair to connect the phase out of the inventory tax to the enactment of an Internet sales tax. But he said legislation might be filed to instruct the state Department of Revenue to collect the tax on Internet sales if the U.S. Congress lifts the ban.
Business groups have been lobbying for years for the elimination of the inventory tax, saying it places Mississippi at a competitive disadvantage because surrounding states do not levy it. Large corporations hold down inventory in Mississippi, business groups argued, so they would not have to pay the tax.
The tax actually is collected by city and county governments. And if it is eliminated, it would take a large increase in taxes on other property for the local governments to make up for the lost revenue.
Under the bill passed Thursday by the Ways and Means Committee, the counties would not lose the revenue. But businesses would be reimbursed by the state for the inventory tax they paid to the local governments through a tax credit.
Smith said business groups say they are putting together a study that would show that the lost revenue to the state would be offset by increased economic activity.
Former Gov. Haley Barbour argued in favor of taxing Internet sales. He said Mississippi companies are at a disadvantage because a 7 percent state sales tax is added to the items they sell while online companies are not collecting the tax on their sales.
Current Gov. Phil Bryant has voiced opposition to the Internet sales tax.
bobby.harrison@journalinc.com