Senate Plan Reduces Income and Grocery Taxes, Raises Gas Tax

Mississippians may soon have lower grocery and income tax rates while paying more for gas under a bill the Mississippi Senate passed on Monday.

In total, the tax reductions would add up to a net income and grocery tax cut of $538 million over five years while bringing in about $212 million yearly in revenue from the additional gas tax if Senate Bill 3095 becomes law.

“I think we’re lowering the burden on Mississippi families. We’re creating a scenario where they’re going to be able to keep more of their hard-earned money, and they’ll be able to choose how they spend it,” the bill’s author, Sen. Josh Harkins, R-Flowood, told reporters on Monday after senators passed S.B. 3095. 

Mississippians who make more than $10,000 a year could see their income tax rate go from 4.7% in 2024 to 2.99% in 2030, declining by 0.25% each year until 2030 under the legislation. The Senate’s tax-reform plan says the Legislature would have to review the income tax plan before 2030 to decide whether to adjust the tax rate further.

Mississippi has the highest grocery tax in the nation among the 12 states that place a sales tax on groceries; the state’s grocery tax rate would go from 7% to 5% starting July 1, 2025, if the legislation becomes law. 

The state’s grocery tax revenue goes to municipalities, education, infrastructure and the State’s general fund. The Legislature would increase diversions from the grocery tax to these areas, so agencies’ budgets would not decrease if the bill becomes law, Harkins said. Municipalities currently get 18.5% of the general sales tax revenue and would also get 25.9% of the grocery tax revenue under Section 11 of S.B. 3095.

“No budget takes a cut from the reduction of grocery tax,” Harkins said on the Senate floor on Monday.

Any municipality that has more than 150,000 residents can impose a “special sales tax” of no more than 1% of the “gross proceeds of sales or gross income of the business” for any activities that have a tax rate of 7% or more under the Mississippi sales tax law, Section 3 of S.B. 3095 says. The capital city, Jackson, is the only Mississippi municipality with more than 150,000 residents.

But before Jackson could implement the special tax, the legislation says the mayor and City Council would have to adopt a resolution stating the City’s intent to enact a special tax, set the amount of the tax imposed, explain how the City would use the tax revenue, set the start and repeal dates for the tax, and host an election for voters to affirm or deny the new local sales tax.

Adding To The Gas Tax

The gas tax would increase under S.B. 3095 from the current 18 cents per gallon to 21 cents per gallon on July 1, 2025, and would go up by three cents per gallon yearly until reaching 27 cents per gallon in 2027. Under the legislation, Mississippi would adjust its gas tax every other year to reflect the percentage change in the yearly average of the U.S. Federal Highway Administration’s National Highway Construction Cost Index starting on July 1, 2029, and the tax increase would not be above one cent per gallon of gas every other year. The same taxes would apply for dyed and undyed diesel fuel, the bill says.

“People that use (the roads) pay for it,” Sen. Josh Harkins said on the Senate floor on Monday. “If you live in a community where you ride your bike or you walk to work, you walk to church, you walk to the grocery store and you live within that area, why should you pay for the roads? You’re not using them. But if you’re driving your car everywhere, shouldn’t those be the people who pay for the roads?”

The Office of State Aid Road Construction and the State Highway Fund would continue to split revenue from the first 18 cents of the gas tax, with 16 cents per gallon going to the Office of State Aid Road Construction and two cents per gallon of the gas tax going to the State Highway Fund “to be used exclusively for the construction, reconstruction and maintenance” of Mississippi highways,” S.B. 3095 says.

Revenue garnered from the gas tax over 18 cents per gallon would go to the Office of State Aid Road Construction, the Strategic Multi-Modal Investments Fund and the Mississippi Department of Transportation, the legislation says. MDOT would get 74% of the amount for improving highways and bridges; the investments fund would get 2.75% and the road construction office would get 23.25% of the proceeds under S.B. 3095.

Harkins told reporters that the constituents he had spoken to were supportive of raising the gas tax if the Legislature cut taxes in other places.

“I think the price of gas has been all over the board. I know when President Trump left office (in 2020), it was around $1.85 (in Mississippi). It has crept up over the last four years. Hopefully, (because of) the president’s position on drilling and opening up drilling across the country and energy independence, I hope the gas will get back down to where it was in his first term,” Harkins told reporters on Monday.

In separate speeches on the Senate floor, Sen. Derrick Simmons, D-Greenville, and Sen. Hob Bryan, D-Amory, criticized the additional gas tax in S.B. 3095 and said the Legislature should have a funding plan for roads and bridges that is not reliant on taking more tax dollars from Mississippians.

“I just think that what we are doing in this proposal, though, will be a tax increase to everyday working Mississippians at the pump, and philosophically, I believe that government, we should actually have a comprehensive plan to repair our roads and bridges and fund roads and bridges like other vital functions of government,” Simmons said on the Senate floor on Monday.

The Senate passed S.B. 3095 on Monday by a 34-15 vote.

Simmons, Bryan: Let’s Fully Eliminate Grocery Tax

Sen. Derrick Simmons, D-Greenville, noted that Mississippi has already cut $1.3 billion from the State’s general fund between the Legislature’s 2016 and 2022 tax cuts. He said completely eliminating the grocery tax would benefit the most Mississippians, noting that 33 states and Washington, D.C., already do not tax groceries. He proposed a strike-all amendment to S.B. 3095 that would eliminate the grocery tax while increasing general sales tax diversions to municipalities “to avoid any loss to our cities.”

“As opposed to eliminating the income tax or reducing the personal income tax, there are a number of senators in this body who believe a fair and equitable way will be to have more of a reduction on the actual sales tax on groceries,” Simmons said on the Senate floor on Monday.

Harkins told Simmons he would support Simmons’ move to eliminate the grocery tax. But Harkins voted against the amendment, and it ultimately failed.

“I’m for lowering the grocery tax, but if you take away consumption as a basis of how we’re going to raise revenue, I think you’d agree with me that not everybody files taxes—not everybody pays taxes—but generally, it’s harder to get out of paying sales tax when you go to the store or buy gas,” Harkins told Simmons “… It catches everybody in the system whenever you’re paying sales tax, so it’s a fair way of collecting. But the level at which you tax, I’d like for all of it to be low—as low as possible.”

Sen. Hob Bryan, D-Amory, said he strongly opposes abolishing the income tax because there is “zero evidence to support” the idea that cutting the income tax is beneficial. He proposed an amendment that would have cut the grocery tax in half and doubled the diversions to municipalities.

“I am perplexed that those who are so obsessed with cutting income taxes that they can’t figure out a way to do it without raising taxes elsewhere,” the senator said on the Senate floor on Monday. “The bill that’s before you has a completely unnecessary increase in the gasoline tax, and the House bill has so many tax increases in it I wouldn’t even know where to stop counting.” He was referring to a competing tax cut plan the Mississippi House passed in January.

Bryan said he does not want to raise the cents-per-gallon gas tax because inflation has “eaten up” the tax revenue and that the cost of constructing roads has “gone through the roof” since Mississippi did not invest money in its road infrastructure years ago. His amendment would have sent $100 million extra annually to the highway departments and municipalities.

Harkins said he and the bill’s cosponsors had “looked at various options” on how to lower grocery costs, “provide an incentive” to “reward work” and dedicate funding for maintaining the state’s infrastructure system—which he called “the lifeblood of our state.” He did not support Bryan’s amendment, and the amendment failed.

Blount: Focus On Funding PERS

Sen. David Blount, D-Jackson, proposed an amendment that would have allowed the tax reform plan to go into effect only after an independent actuary ensured that the Public Employees’ Retirement System’s unfunded liability was less than 20%. PERS’s unfunded liability is currently at 44%.

One of the bill’s cosponsors, Sen. Daniel Sparks, R-Belmont, said the Senate has already filed four bills that would give about $200 million to PERS. He noted that the House’s tax-reform plan, House Bill 1, has “wiggle room in enough areas to get attention” but did not dedicate enough funding to fix PERS’s issues. 

“What’s a good deal for PERS is listening to the PERS board (members) who asked us to create a Tier 5, which we have passed, which will be beneficial in the future,” Sparks said on the Senate floor on Monday.

Blount’s amendment failed.

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