A legislative panel looking for ways to cut or eliminate state taxes in Mississippi on Wednesday heard from city, county and transportation officials about their need for adequate and stable infrastructure funding.
“Infrastructure, that’s our main need,” said Ocean Springs Mayor Kenny Holloway. “We’re an old city, and we’ve got crumbling water pipes, sewer pipes, sidewalks and roads. We’re growing, and it’s hard to keep up with needs.”
Holloway was one of four mayors to address the House Select Committee on Tax Reform during its second of several planned hearings for the summer and fall. The committee also heard from a representative of the association for counties, a transportation expert about the Mississippi Department of Transportation’s need for more funding, and the Department of Revenue.
Reps. Trey Lamar, R-Senatobia, and C. Scott Bounds, R-Philadelphia, co-chairmen of the tax committee, said helping keep up with infrastructure needs statewide and cutting taxes — potentially eliminating the state income tax — are not mutually exclusive. State coffers have remained flush since an influx of federal pandemic relief spending, even as the largest income tax cut in state history has been phased in over the last few years.
“There are three goals,” Lamar said at the outset of Wednesday’s hearing. “One, to learn as much as we can and recommend policy to the Legislature that will be transformational and provide us with the most competitive, most fair tax structure … Two, to be sensitive to the needs of local governments … government closest to the people … and three, to fix the funding model for the Mississippi Department of Transportation for the long haul.”
House Republican leaders have for several years promoted elimination of the state’s income tax. Their efforts have fallen short of elimination, but in 2022 resulted in passage of a $525-million a year income tax cut. When fully phased in in 2026, Mississippi will have a 4% income tax rate, one of the lowest among states that have an income tax.
Senate leaders, who have also formed a fiscal study committee to make recommendations for next year, previously balked at full elimination of the income tax that provides nearly a third of the state’s revenue. Lt. Gov. Delbert Hosemann and other Senate leaders have appeared more focused on cutting or eliminating the state’s 7% sales tax on groceries — the highest such tax on groceries in the nation.
But city leaders — especially those in small cities — have for years been leery of talk of cutting the sales tax on groceries. Many small city budgets rely on sales taxes, and in many small rural cities, the main source of sales tax is from grocery stores.
On Wednesday, mayors of several Mississippi cities stressed to lawmakers how much their budgets rely on sales taxes and use taxes — sales taxes collected on internet and other sales outside of the state. The state collects the taxes, then provides cities a “diversion” of part of the taxes collected inside each city.
DOR officials said Mississippi appears to be the only state that provides such a diversion of sales taxes, but many other states allow cities to levy their own “local option” sales taxes on top of the state’s. But state lawmakers have been loath to allow cities to levy local option sales taxes. Lamar told the panel Wednesday he recently went to a seminar in West Virginia, and he got an itemized bill that showed nearly 20% in sales taxes all told.
“We in local government don’t have any problems that money can’t fix,” Louisville Mayor Will Hill joked with lawmakers. “… We have the infrastructure issue, and the increased cost of policing and fire protection. We’re interested in having conversations on the importance of sales taxes, whether it’s increased diversions of local options.”
Steve Gray with the Mississippi Association of Supervisors reminded lawmakers that counties do not receive such a sales tax diversion, but he said they are thankful for lawmakers diverting some use taxes to county road and bridge needs starting a few years ago.
Gray said needed road and bridge work — and the skyrocketing cost of construction and materials — are the biggest fiscal challenge facing counties.
“We’re excited to be at the table and helping work toward a solution,” Gray told lawmakers.
The panel also heard from an expert with a company that has helped the Mississippi Department of Transportation for decades with its long range planning.
Paula S. Dowell, with HTNB Corporation, said MDOT has perennially been short of money to maintain all its roadways, much less build new ones to keep up with demand. The agency is primarily funded by a flat, per-gallon gasoline tax that is not indexed to keep up with inflation.
Mississippi, at 18.4 cents a gallon, has the second lowest motor fuel tax in the nation — which hasn’t been raised in 30 years. Dowell said lawmakers could consider diverting more existing state dollars to MDOT, increase current taxes or enact new ones, such as an indexed sales tax devoted to transportation infrastructure.
She said other states have also implemented road user charges, or mileage fees, package delivery fees or container/cargo fees to help fund infrastructure. Dowell said some states have built toll roads, but that would have limited benefit in rural Mississippi.
In addition to the select committee hearings, House Speaker Jason White recently announced a tax policy summit, open to the public, on Sept. 24 at the Sheraton Refuge in Flowood.
“This Policy Summit is another step in the House’s commitment to building Mississippi up to have the most appealing tax structure in the nation,” White said in a statement. “It is the vision of the House of Representatives that we accelerate our pathway to eliminating the personal income tax so that we reward Mississippians’ hard work, not tax it. The Select Committee has been working hard in studying our grocery tax and providing relief to Mississippians when they go through the checkout line to provide for their families.”
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