MPs consider reducing food sales tax in the wake of income tax debate

A possible cut in the sales tax on groceries is gaining traction among lawmakers this recess, but the math and politics get a little tricky since Mississippi cities and towns rely heavily on the revenue. Add to that a likely attempt to eliminate the state income tax entirely, and the path to further taxpayer relief is cloudy at best.

Starting in 2026, Mississippi residents will pay a flat income tax rate of 4 percent. That’s because of the historic 2022 tax cut that allows working Mississippians to keep nearly $500 million of their money.

Over the past two years, state leaders — namely Gov. Tate Reeves (R) and Speaker Jason White (R) — have promised to continue exploring tax relief with the goal of eliminating the income tax entirely. Although those efforts have stalled during the 2024 session, there is hope that the policy debate could flare up again in January.

As for sales tax on groceries, Mississippi currently imposes a 7 percent tax on the dollar, including groceries. According to AARP, Mississippi is one of 13 states that tax grocery purchases, with the Magnolia State’s rate being the highest in the nation.

Calls for change

During the Neshoba County Fair last week, House Speaker Jason White (R) said his plan is to cut the grocery sales tax by at least half, bringing it to 3.5 percent overall. He acknowledged that would be a difficult task, since 18.5 percent of the current 7 percent tax is diverted to municipalities to fund local government operations.

Speaker White convened a special committee on tax reform in May. The committee will thoroughly examine the state’s tax structures and present recommendations to the House of Representatives in January.

As previously reported by the Magnolia Tribune, White believes that reducing the sales tax on groceries while ensuring that communities are not negatively impacted is critical to reaching consensus on eliminating the income tax. The spokesperson said everything is on the table, with two goals in mind, at least for him.

“Ultimately, we want to accomplish two things: eliminate the income tax in as few years as possible and hopefully cut the food tax in half,” spokesman White said in May.

Republican state Rep. Jansen Owen is one of the members of the Speaker’s Select Committee. He said members are taking a close look at the state’s taxes to figure out what’s best.

“We’re looking at Mississippi’s entire tax system from the local level all the way up,” Owen told the Magnolia Tribune during a recent legislative update in Pearl River County. “We’re looking at what’s best for the state’s economy, what’s best for businesses, what’s best for people and what’s best for local governments.”

Cutting the sales tax on groceries has been a key issue in the 2023 election cycle, with Democratic gubernatorial candidate Brandon Presley making it one of the pillars of his campaign. Lieutenant Governor Delbert Hosemann (R) has also previously spoken out in favor of cutting the sales tax on groceries.

State Sen. Brice Wiggins (R) told the Magnolia Tribune he has supported a reduction in the sales tax on groceries for years. He said his constituents on the coast have expressed a need for a tax break. Wiggins added that if the details could be worked out, he would support eliminating the tax.

“That’s a trade-off I’m willing to make, less revenue for the relief it will bring to Mississippi families,” Wiggins said. “This is about everyday life; this is something that would bring relief to those families.”

Mastering the complexity: balancing revenue needs and tax relief

State Sen. Josh Harkins (R) said the hurdles to cutting the sales tax on groceries are protecting the communities and other entities that benefit from the sales tax diversion. Unlike the income tax cut, the sales tax cut is not a dollar-for-dollar cut.

“However, if you save a dollar on the food tax, you also have to compensate all participants in all diversions, otherwise there will be cuts,” Harkins explained.

According to the Mississippi State Department of Revenue’s annual report, a portion of the sales tax is also used for education and infrastructure.

To solve this problem, Speaker White has proposed increasing the 18.5 percent sales tax paid to cities to offset the lost revenue. But White knows, “If you want to keep these cities intact, it’s going to be difficult.”

In numbers

For example, Senator Harkins explained that a $100 purchase of goods generates $7 in sales tax for the state. Of that tax, 18.5 percent is returned to the city where the product was purchased. In Mississippi, only municipalities receive sales tax deductions; counties do not.

While exact food sales tax figures are not included in the Department of Revenue’s annual report, estimates from the department’s communications division show that food sales within the state totaled $6.2 billion in fiscal year 2023, representing nearly $440 million the state collected in food sales tax. The state transferred nearly $315 million of the food sales tax total to the general fund and diverted nearly $73 million to cities for use. Another $52 million was diverted to education and infrastructure.

“They want to eliminate the $440 million grocery tax. They want to eliminate the $2 billion income tax, and we collect about $7 billion annually,” Harkins added. “Ultimately, it’s about priorities. I haven’t seen many proposals to cut funding for anyone.”

In fact, the state budget continues to rise every year.

For comparison, the total amount of all sales taxes collected by Mississippi was $4 billion. Of that, $560 million was diverted to cities in the same fiscal year, according to the DOR’s annual report. The report also points out that sales taxes make up a large portion of the state’s general fund, about 36.8 percent — more than individual income taxes at 32.2 percent.

The Road Ahead: Challenges of Changing Mississippi’s Food Sales Tax

Because such a large portion of the general budget comes from sales tax, Senator Harkins said it would be difficult to reduce the sales tax on groceries while continuing to reduce income taxes.

“There’s a lot of money involved when you try to cut income taxes. You don’t have that many options to cut taxes,” Harkins explained. “You have to get it from somewhere. You either have to grow economically, grow the economy so that more revenue is generated. When you try to cut all these taxes, it’s great in theory, but putting it into practice is the hard part.”

However, Senator Wiggins points out that the state has experienced revenue surpluses in recent years. The latest figures released Monday by the Legislative Budget Office show that Mississippi ended fiscal year 2024 with an estimated surplus of $979.4 million, including reappropriations.

“I think this is one of those cases where you don’t have to make it up,” Wiggins said. “The people who benefit from the sales tax are local cities and town governments, in addition to other governments. I think there are a lot of trade-offs that have to be made, and this is one of those trade-offs. So I don’t know if you really have to make it up.”

Senator Harkins sees the only solution to lowering the sales tax on groceries as raising other taxes, such as property taxes. That is something Senator Angela Hill (R) does not want to see.

“Because I personally don’t want my property taxes increased to make up for the loss in the grocery tax,” Senator Hill told the Magnolia Tribune.

In January, various proposals from both sides of the aisle and both legislative chambers are expected to hit the table. Until then, lawmakers will continue to debate options, hold hearings and consider tax reform proposals in the run-up to the 2025 session.

This article, written by Jeremy Pittari, was first published by Magnolia Tribune and republished here under a Creative Commons license.

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