The fight to eliminate the state income tax in Mississippi lives to see another day.
On Monday, committees in the Mississippi Senate and House of Representatives gutted one another’s tax reform bills and adopted amended proposals. One day later, each chamber held a floor vote on their respective proposals and both moved forward with different plans to:
- Slash the income tax
- Lower the grocery tax
- Provide a stream of recurring funding for infrastructure projects
- Address the state’s public employees’ retirement system
Here’s what the Senate and House are proposing:
The Senate’s new plan to cut taxes
For the first time, the Senate has acquiesced to calls to eliminate income tax. The Senate’s rendition of House Bill 1 passed 32-16 on Tuesday.
The chamber’s proposal cuts the income tax from 4% to 3% between 2027-2030 with plans for future cuts down to elimination contingent on economic growth. For example, if Mississippi has a rough year financially after 2030, guardrails are in place to prevent a tax decrease that year. However, according to Hosemann, the goal is full elimination.
As was part of the Senate’s original plan to cut taxes, Mississippi’s nation-leading sales tax on groceries would drop from 7% to 5% in July 2025 to give consumers relief at the checkout line.
The Senate has also kept its 9-cent increase to the excise tax on gas intact. 74% of revenue accrued would go to the Mississippi Department of Transportation, 23.25% to the State Aid Road Construction Fund, and 2.75% to the Strategic Multi-Modal Investments Fund for infrastructure upgrades.
A major shakeup in the updated legislation is moving new state employees to a Tier 5 retirement plan under PERS. This would apply to those who take state jobs after March 1, 2026. A measure approved by the PERS Board of Trustees in 2024, Tier 5 would reform the benefit structure for future state workers to rectify concerns about the financial viability of the program.
The House’s new plan to cut taxes
The House’s modified version of its original tax reform plan, which passed 90-26 on Tuesday, now incorporates an immediate reduction in the grocery tax. Instead of paying a 7% sales tax at market counters, that number would go to 5% in July 2025 – just like the Senate’s plan.
Unlike the Senate’s plan, the House would replace lost revenue in grocery stores by increasing sales tax from 7% to 8% on non-grocery items. $48 million of the revenue generated, according to the bill, would be disbursed to the State Aid Road Fund annually. All additional proceeds would go to the state’s general fund.
One addition that was not initially addressed is a change to the state’s use tax – a fee consumers pay on items that were not purchased locally. Mississippi’s use tax would go from 7% to 8% just like the sales tax on non-grocery items. Revenue garnered by the upped use tax would be used to provide a $200 annual credit in property tax relief to Mississippians 65 and older through the Homestead Exemption Reimbursement Fund.
Just like in the Senate, the House’s plan includes an increased excise tax on fuel. The gas tax would be upped by five cents per year over a three-year span, resulting in a 15-cent total increase. Monies secured through the raised gas tax would create a stream of recurring revenue for the Mississippi Department of Transportation and the Strategic Multi-Modal Investments Fund.
The House and Senate still butt heads over strategies to address the public employees’ retirement system. The House is keeping its proposal of $100 million generated from the lottery going to PERS until it reaches an 80% funded ratio. The remaining dollars will go to education.
One final highlight of the House’s new plan is that $300 million will be transferred from the Capitol Expense Fund to the Budget Contingency Fund, a special fund in the state treasury established to address unforeseen or urgent government expenditures.
What’s next?
Now it looks like conference negotiations are inevitable. If lawmakers can come to a consensus agreement on a plan to advance unilaterally, the legislation will go to Gov. Tate Reeves’ desk. Reeves, a longtime proponent of income tax elimination, would likely enact the bill into law.
It is still possible that a compromise will not be achieved this session as both sides have taken drastically different approaches to a similar goal, which would lead to Reeves having to make a decision on whether to call a special session and forcing lawmakers’ hands when it comes to cutting taxes. Reeves has made it abundantly clear that his top goal is to fully eliminate income tax.
