Mississippi to “Eliminate” Income Tax, But Raises Gas Tax for Roads, Bridges

A new law has been signed in Mississippi that calls for the eventual elimination of the state’s individual income tax but raises the gas tax for the first time in nearly 40 years.

The income tax, currently at 4.4% for those who make over $10,000 a year, will drop to 4% this year. It declines each year after that until reaching 3% in 2030. Then, it would reduce by a percentage based on any annual revenue surplus the state has until the tax is eliminated.

Though some have estimated the drop to 3% by 2030 will cost the state $407 million in revenue, roads and bridges in the state won’t take a hit. In fact, the Mississippi Department of Transportation and county transportation departments are expected to see a $250 million to $300 million boost. That will come as the 18.4-cent-per-gallon gas tax will rise 3 cents a year for the next three years. After 2027, it will rise 1 cent a year, under the new law.

MDOT Executive Director Brad White said earlier this year that all the money from the gas tax increase would go for highways and bridges, enabling the agency to tackle its list of projects much quicker. He added that the state’s gas tax would still be lower than surrounding states and one of the lowest in the nation. Mississippi currently has the second-lowest gas tax in the country, with Alaska the lowest.

As for the income tax reductions, Governor Tate Reeves said upon signing the legislation March 27 that its elimination would make the state a “magnet for opportunity, for investment, for talent.”

“The legislation I’m signing today puts us in a rare class of elite, competitive states,” Reeves said. “There are only a handful of states in the country that do not tax income. Today, Mississippi joins their ranks – and in doing so, we plant our flag.”

Eight states have no individual income tax. They are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

Mississippi’s new tax law also comes with a 2% drop in the sales tax on groceries from 7% to 5%, effective July 1.

There is a chance the state legislature may revisit the tax bill it passed and was signed by Reeves. That’s because the bill contained typos that seemed to have the phase-out occurring quicker than the Senate intended.