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Mississippi issues guidance on federal tax reform provisions

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The Mississippi Department of Revenue has released a notice detailing the impact of various provisions of H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (TCJA), on Mississippi taxpayers, which addresses both business and individual terms.1 Notably, the guidance indicates that both IRC Sec. 965 repatriation dividends and IRC Sec. 951A global intangible low-taxed income (GILTI) will generally be considered nonbusiness income. Further, the Department confirmed that Mississippi does not conform to the corporate interest expense limitation imposed by IRC Sec. 163(j) or the federal deduction allowed by IRC Sec. 199A for qualified business income from a pass-through entity.

Business taxes For corporate income tax purposes, Mississippi conforms to the IRC as currently in effect.2 As a result, the state generally conforms to the federal tax reform provisions included in the TCJA, as well as H.R. 1892, commonly referred to as the Bipartisan Budget Act of 2018.3 However, Mississippi has relevant statutory provisions impacting several of the federal terms which prevent blanket conformity.

IRC Sec. 163(j) – Interest expense limitation
Mississippi does not conform to the new interest expense limitation based upon 30% of adjusted taxable income. According to the Department’s notice, its statutes permit a business interest deduction with no limitation,4 and the additional amount of federal interest deduction will be treated as an adjustment on the Mississippi return.

IRC Sec. 168(k) – Bonus depreciation
Consistent with prior iterations of IRC Sec. 168(k), Mississippi does not conform to the TCJA’s expanded expensing provisions permitting 100% expensing of qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.5

IRC Sec. 172 – Net operating losses
Mississippi does not conform to the prospective net operating loss (NOL) limitations imposed by tax reform.6 The federal provisions limit the deductibility of NOLs generated on or after Jan. 1, 2018, to 80% of taxable income and eliminate the previously available two-year carryback, while allowing an unlimited carryforward period. Instead, Mississippi will continue to follow its own NOL provisions, which require a two-year carryback and limit the carryforward period to 20 years.7

IRC Sec. 179 – Building improvement deduction
Mississippi conforms to the expansion of IRC Sec. 179, which increases the maximum deduction from $500,000 to $1 million for property placed in service after Dec. 31, 2017.8

Other provisions
The TCJA makes several modifications to the allowable deduction amounts for entertainment, amusement and recreation expenses.9 Specifically, it eliminates the previously allowable 50% deduction for such expenses associated with entertainment activities if related to the active conduct of the taxpayer’s business. Meals which are not considered extravagant remain 50% deductible if the taxpayer is present. Mississippi will follow these and related modifications included in the federal provisions.10

Mississippi historically has not followed the federal law limiting the allowable amount of charitable contribution deduction. Instead, it is limited to 20% of taxable income, computed without regard to the deduction for the charitable contributions.11 This treatment has not changed as a result of the TCJA.

The TCJA amends the provisions relating to excluding gains from IRC Sec. 1031 exchanges, limiting them to only apply to real property not held primarily for sale. Mississippi follows this modification for exchanges of Mississippi real property located outside the state. However, Mississippi also provides a state-level exclusion for gains from the sale of Mississippi property, without regard to whether the real property is held primarily for sale.12

Several changes generally applicable to small businesses were included in the TCJA. A modification to the change in accounting method procedure allows taxpayers with less than $25 million of average gross receipts to elect to use the cash method of accounting.13 Mississippi likewise respects this method for adopting the change.14 Further, Mississippi will accept use of the completed contract method for contractors with average gross receipts of less than $25 million for the previous three years, rather than the completed contract method, which was adopted by the TCJA. Finally, the TCJA modified the definition of a capital asset for dispositions after Dec. 31, 2017 to exclude certain self-created property. Mississippi will not conform to this change, but will continue to apply its own definition of capital asset.15

Foreign income provisions The TCJA modified and added a number of provisions to the IRC that impact multinational taxpayers, effectively changing the U.S. tax system from a worldwide territorial system to a quasi-territorial system. As part of this change, the TCJA created a 100% dividends received deduction (DRD) for foreign sourced dividends received from 10%-or-more owned foreign corporations.16 Under IRC Sec. 965, the transition to the quasi-worldwide territorial system subjects repatriated foreign earnings to a one-time transition tax at 15.5% or 8% depending on the type of asset.17 IRC Sec. 250 was added to provide a deduction equal to 37.5% of a domestic corporate taxpayer’s foreign derived intangible income (FDII) for tax years beginning after 2017.18 As part of the TCJA’s effort to create a more territorial regime of taxation, it added IRC Sec. 951A that creates a new class of income, GILTI, recognized by U.S. shareholders of controlled foreign corporations for tax years beginning after 2017.19

IRC Sec. 965 – Repatriation
The Department has indicated in its notice that IRC Sec. 965 deemed repatriation dividends are nonbusiness income as foreign sourced dividends for Mississippi purposes and should be allocated to Mississippi under nonbusiness allocation rules.20

IRC Sec. 951A – GILTI
The GILTI provision requires U.S. shareholders owning at least 10% in one or more controlled foreign corporations to include GILTI in their current taxable income. Generally, as mentioned in its notice, the Department considers foreign source income to be nonbusiness income, subject to allocation.

Individual income taxes For personal income tax purposes, Mississippi does not generally incorporate the IRC by reference.21 However, in defining gross income for personal income tax purposes, it does adopt a few select federal provisions by direct reference. The guidance provided by the Department addresses the impact of several provisions included in the TCJA.

IRC Sec. 199A – Pass-through deduction
The TCJA adopts a 20% deduction of qualified business income from pass-through entities for individual taxpayers. As Mississippi has no similar statutory provision allowing such deduction, the Department has advised in its notice that such deduction will not be allowed in computing Mississippi individual income tax.

Itemized deductions
Mississippi statutes generally provide that taxpayers are allowed the same individual nonbusiness itemized deductions as for federal income tax purposes, with certain exceptions including state income taxes paid.22 Therefore, most of the federal changes limiting or modifying allowable deductions are adopted by Mississippi. However, exceptions may apply in computing net casualty losses. Also, Mississippi does not follow the federal provisions limiting the deductibility of excess business losses exceeding $250,000 for single taxpayers and $500,000 for joint filers.

Other provisions
The doubling of the federal standard deduction and elimination of the personal exemption do not impact the computation of Mississippi individual income tax, which offers its own versions of these provisions. As to other changes adopted by the TCJA, Mississippi follows the federal repeal of the deduction for the payer and inclusion in income for the recipient of alimony payments.23 It also adopts the federal provision limiting the availability of the deduction for moving expenses to only active duty military personnel.24 Mississippi does not follow the federal provisions for cancellation of debt, and continues to include it in gross income for state purposes, unless it qualifies as debt discharged through bankruptcy. Mississippi follows the federal expansion of qualified education expenses for purposes of 529 plans to include up to $10,000 per year for elementary or secondary public school, private home school or religious expenses.25 Finally, the federal increase to the allowable contributions to an Achieving a Better Life Experience (ABLE) account extends to Mississippi.

Commentary As the Mississippi legislature regularly meets on a biannual basis and did not convene during 2018, its lawmakers have not had an opportunity to date to respond to the TCJA. The guidance provided by the Department is a significant step towards providing clarity for taxpayers regarding its impact, and it will be interesting to see whether the legislature ultimately decides to follow or depart from the positions taken by the Department in its notice.

In particular, the Department’s determination that both repatriated earnings and GILTI will be treated as nonbusiness income will come as a surprise to many multistate taxpayers that had defaulted to business income treatment for these items. By excluding these amounts from the definition of business income, Mississippi has generally conceded that they are excluded from state apportionment calculations. Based on this characterization, some companies commercially domiciled in Mississippi could be forced to include these entire amounts in income based on general allocation rules. Given that the tax on repatriated earnings was reportable on taxpayers’ 2017 tax returns, the Department’s recent notice could require taxpayers to reconsider how they had reflected this inclusion on their 2017 returns, resulting in the filing of amended returns.

While the Department sheds a little light on how to treat repatriated earnings and GILTI through the issuance of its notice, there are numerous unresolved issues to consider. Mississippi presumably conforms to the repatriation addition under IRC Sec. 965(a), but it is not entirely clear whether taxpayers are allowed to take the corresponding subtraction under IRC Sec. 965(c). Also, while the Department’s guidance classifies the repatriation as a dividend, the Department does not address the legal basis on which such classification was made. Assuming such classification is accurate, dividends that are nonbusiness income are allocated to the state of the corporation’s commercial domicile.26 Additional uncertainty exists regarding the treatment of GILTI. For example, it is not clear whether the complementary deductions for GILTI and foreign derived intangible income (FDII) provided by IRC Sec. 250 are available to taxpayers to offset the full GILTI inclusion under IRC Sec. 951A. Because the Mississippi allocation statute does not specifically address how to allocate foreign-sourced income such as GILTI, taxpayers must look to the Department’s guidance for further interpretation.27 However, the Department’s administrative rule for allocating nonbusiness income is silent on how to classify and allocate GILTI.28 Future legislation or further guidance hopefully will provide clarity on these issues.



1. Notice 80-19-001, Mississippi Department of Revenue, Jan. 24, 2019 (revised Jan. 28, 2019).
2. MISS. CODE ANN. § 27-7-15.
3. P.L. 115-97, P.L. 115-123. For a discussion of the TCJA, see GT Alert: Tax Reform Law Transforming Business and Tax Planning.
4. MISS. CODE ANN. § 27-7-17(1)(b).
5. MISS. CODE ANN. § 27-7-17(1)(f).
6. IRC § 172(b)(1)(A)(i).
7. MISS. CODE ANN. § 27-7-17(1)(l).
8. MISS. CODE ANN. § 27-7-13; CODE MISS. R. § 35.III.5.04.
9. IRC § 274.
10. MISS. CODE ANN. § 27-7-17(1)(a); CODE MISS. R. § 35.III.5.08.
11. MISS. CODE ANN. § 27-7-17(h).
12. MISS. CODE ANN. § 27-7-9(f)(1)(A).
13. This election is accomplished by filing Form 3115, Change in Accounting Method, with the Internal Revenue Service.
14. CODE MISS. R. § 35.III.1.02. Taxpayers must attach a copy of Federal Form 3115 with their Mississippi return to receive this treatment.
15. MISS. CODE ANN. § 27-7-99.
16. IRC § 245A. Domestic corporations must hold the foreign stock for 365 days to be eligible for the DRD. IRC § 246(c)(5).
17. IRC § 965. The transition tax is imposed by using the Subpart F rules to require applicable U.S. shareholders to include their pro rata share of post-1986 earnings and profits (E&P) in income to the extent such E&P has not been previously subject to U.S. tax. The income included in federal taxable income is reduced utilizing an exclusion provision in IRC § 965(c).
18. IRC § 250. FDII is broadly defined to include income received from the sale of property for foreign use or services rendered to persons outside the U.S. While GILTI is taxed at regular rates, IRC § 250 allows a deduction of 50 percent of the amount included in income (this amount drops to 37.5% for tax years beginning after 2025). IRC § 250(a)(1)(B).
19. IRC § 951A. GILTI is the excess of the aggregated “tested income” over a routine return on certain tangible assets.
20. CODE MISS. R. § 35.III.8.06 (302.01)(5)(b).
21. MISS. CODE ANN. § 27-7-15.
22. MISS. CODE ANN. §§ 27-7-901; 27-7-903.
23. MISS. CODE ANN. §§ 27-7-15(2)(e); 27-7-18.
24. MISS. CODE ANN. § 27-7-18(2).
25. MISS. CODE ANN. § 37-155-113.
26. MISS. CODE ANN. § 27-7-23(c)(3)(F).
27. The Mississippi statute governing the treatment of nonbusiness income contains a catchall provision for nonbusiness income not specifically allocated under the statute, allowing the Mississippi commissioner the right to prescribe guidance. MISS. CODE ANN. § 27-7-23(c)(3)(H).
28. CODE MISS. R. § 35.III.8.06 (303).



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