Explanation of the Build Up Mississippi Act

Gas Tax Increases - Grocery Tax Decreases

Photo by Markus Winkler on Unsplash

The Build Up Mississippi Act (House Bill 1), signed into law by Governor Tate Reeves on March 27, 2025, is a transformative piece of legislation aimed at phasing out Mississippi’s state personal income tax, reducing the state grocery sales tax, increasing the gasoline tax, and granting local governments the authority to adjust grocery taxes under specific conditions. The Act seeks to eliminate the state’s 4.4% flat personal income tax over the next decade, positioning Mississippi as the first state with an existing income tax to legislate its complete removal. Below is a detailed explanation of the Act, including its tax cuts, tax increases, and provisions for local government grocery tax adjustments.

Overview of the Build Up Mississippi Act

The Act outlines a gradual elimination of the personal income tax through annual reductions and revenue-based triggers, with full elimination targeted for the mid-2030s, contingent on economic growth. To offset revenue losses and stimulate the economy, the legislation reduces the state’s grocery sales tax, increases the gasoline tax, and allows local governments to impose or increase grocery taxes. The goal is to enhance Mississippi’s economic competitiveness, attract businesses and workers, and align the state with no-income-tax states like Texas, Florida, and Tennessee.

Tax Cuts in the Build Up Mississippi Act

1. Personal Income Tax Reduction and Phase-Out:

   • Initial Cuts: Beginning in 2027, the state’s flat 4.4% personal income tax rate will decrease by 0.25% annually, reaching 3% by 2030.

   • Trigger-Based Reductions: Post-2030, further cuts will be tied to “growth triggers,” where reductions occur only if state revenue exceeds spending projections. Sustained economic growth could eliminate the income tax entirely by the mid-2030s.

   • Impact: The income tax generates roughly $2.6 billion annually, about one-third of Mississippi’s $7 billion general fund. Its elimination would provide significant relief to Mississippi taxpayers.

2. State Grocery Sales Tax Reduction:

   • Reduction: The state sales tax on groceries, currently the highest in the nation at 7%, will be reduced to 5% effective July 1, 2025.

   • Impact: This reduction aims to lower living costs for all Mississippians, particularly benefiting low- and middle-income households who allocate a larger share of their income to groceries.

Tax Increases in the Build Up Mississippi Act

1. Gasoline Tax Increase:

   • Increase: The state gasoline tax will rise from 18.4 cents per gallon to 27 cents per gallon by July 2027, implemented incrementally over two years.

   • Purpose: The additional revenue will fund infrastructure improvements, such as roads and bridges, to support economic growth.

   • Impact: This increase may disproportionately affect lower-income residents and rural drivers, though it is intended to be offset by income and grocery tax reductions.

Local Government Authority to Increase Grocery Tax

• Provision: The Build Up Mississippi Act grants local governments (municipalities and counties) the authority to impose or increase local sales taxes on groceries, provided they meet specific requirements. This provision allows local governments to offset potential revenue losses from state-level tax cuts or to fund local priorities such as schools, public safety, or infrastructure.

• Conditions: Local governments must hold a public referendum to gain voter approval for any new or increased grocery tax. The tax rate and specific use of the revenue must be clearly defined in the referendum. Additionally, any local grocery tax increase cannot result in a combined state and local grocery tax rate exceeding 7% (the current state rate before the reduction).

• Impact: Proponents claim this “flexibility” enables local governments to tailor tax policy to their communities’ needs, particularly in areas where state funding for services may be strained due to the income tax phase-out. However, critics argue that local grocery tax increases could negate the benefits of the state’s 5% grocery tax reduction, especially for low-income households, as groceries remain a significant expense. The regressive nature of sales taxes means that poorer residents, who spend a higher percentage of their income on essentials, could face a disproportionate burden if local taxes are raised.

Additional Notes

• Fiscal Safeguards: The Act’s trigger mechanism ensures that income tax cuts beyond 2030 occur only if state revenue growth exceeds projections, protecting politicians who refuse to make significant budget cuts.

• Typo Controversy: A drafting error in the trigger formula inadvertently accelerated the income tax phase-out, prompting plans for corrective legislation in the next session.

• Economic Context: Mississippi’s $700 million surplus in 2024 supports the feasibility of the tax cuts.

The Build Up Mississippi Act is a bold step toward economic transformation. However, its success will depend on politicians having the discipline to reduce wasteful spending and a continued commitment to creating positive economic incentives for businesses to grow.