Mississippi Sales and Use Tax Explained: Key Rules & Rates

Sales and Use Tax Basics in Mississippi

Sales Tax

Like most US states, Mississippi imposes sales tax on the sale of tangible personal property and certain services, at the gross proceeds of sale or the gross income of the business, depending on the type of sale or service. 

Regarding tangible personal property, or tangible goods, the definition refers to items that can be physically perceived through the senses, meaning they can be seen, touched, or otherwise detected. Tangible goods include electricity, water, gas, steam, pre-written software, and digital or electronic goods. However, it excludes non-physical assets, real estate, and financial instruments, such as bank accounts, stocks, bonds, mortgages, or insurance policies.

Use Tax

The use tax in Mississippi applies to tangible goods acquired for use, storage, or consumption within the state when sales or use tax has not already been paid to another state, and it is calculated at the same rates as the sales tax. Taxable persons, both individuals and taxable persons, subject to use tax must register with the Mississippi Department of Revenue and file periodic returns, with due dates matching those for sales tax.

Mississippi Sales and Use Tax Rates

In Mississippi, a combination of a statewide 7% sales and use tax rate and local sales and use tax rates of up to 1% applies to taxable transactions. Even though the 7% rate applies to retail sales of tangible goods, certain items, such as groceries, farm equipment, and specific vehicles, are subject to lower sales tax rates. Additionally, sales to electric power associations, manufacturing machinery, and materials to particular industries may be taxed at reduced rates, ranging from 0% to 7%.

Depending on the type of property or service, construction contractors over USD 10,000, floating structures, public utilities, amusements, and miscellaneous services, including repairs, installations, and personal property rental, are subject to sales tax at rates ranging from 1% to 7%.

Tax-Exempt Transactions

The law must explicitly define sales tax exemption, and generally does not apply to the contractor's tax. Moreover, exemptions are provided for the agriculture industry, including sales of crops, livestock, seeds, feed, fertilizers, and certain supplies used in farming, as well as services performed for farmers, provided the service does not exceed USD 10,000. 

Additionally, state legislation provides governmental exemptions for sales to federal and state governments, certain Native American tribes, schools, fire departments, and approved medical equipment, textbooks, and buses, with some restrictions. Furthermore, exemptions are provided for certain industrial sales, including raw materials, machinery, equipment, and supplies used directly in manufacturing, processing, shipping, or international commerce.

Other exemptions include non-profit hospitals, educational publications, burial-related items, exported property, nonprofit organizations providing social services, particular food and clothing items, and specialized programs such as WIC or Girl Scouts sales.

Nexus Rules in Mississippi

Taxable persons can register for sales tax purposes in Mississippi online through the TAP system, after which a packet containing the permit and tax filing information is mailed, usually within two weeks. In addition to businesses located in the state, out-of-state sellers and marketplace facilitators must register once they establish a nexus in the state.

Physical Nexus

If a taxable person has an office, a distribution house, a salesroom or house, a warehouse, or any other place of business, or owns personal property within state borders, it is considered to be physically present in Mississippi, and thus is required to register for sales tax. 

The exact requirement may arise if taxable persons install personal property in Mississippi or sell, or take orders for, tangible goods directly by mail, through an employee representative, salesperson, commission agent, canvasser, solicitor, or independent contractor, or by any other means from within the state.

Economic Nexus

Out-of-state sellers may also become liable to collect and remit sales tax if their annual Mississippi sales exceed USD 250,000 in the previous 12 months. Notably, both wholesale, taxable, and exempt sales are counted toward the economic nexus threshold.  Additionally, the economic nexus is established when the out-of-state seller purposely or systematically exploits the Mississippi market through advertising, telemarketing, direct mail, online marketing, or other targeted activities.

Marketplace Nexus

Since June 2020, marketplace facilitators whose online sales or rentals of tangible goods, such as software, specified digital products including audio-visual works, audio works, and e-books, as well as online sales of hotel or motel stays, exceed USD 250,000 in any consecutive twelve-month period must register for a Mississippi tax account and begin collecting and remitting sales and use tax.

Taxable Goods and Services in Mississippi

Unless strictly defined as exempt, sales of tangible goods are subject to sales or use tax. Taxable transactions also include repairs to tangible goods, the rental or lease of vehicles or equipment, and admission charges for amusements, sports, or recreational activities. 

Additionally, services such as pest control, plumbing, electrical work, HVAC, computer software services, dry cleaning, and parking are subject to sales and use tax. Furthermore, hotel and campground accommodations rentals, as well as contracting services, are subject to sales tax. 

Bundled Transactions and the True Object Test

Bundled transactions commonly refer to a sale of distinct and identifiable products or services for a single non-itemized price, where the components are treated differently for tax purposes. In Mississippi, when a bundle includes taxable services such as telecommunications, internet access, or audio and video programming, any portion of the price attributable to non-taxable components is generally subject to tax unless the provider can clearly identify that portion using its regular business records.

E-Commerce Framework

In 2018, Mississippi introduced a special set of rules for out-of-state sellers following the US Supreme Court’s decision in South Dakota v. Wayfair, Inc. Therefore, those who exceed the economic nexus threshold are considered sellers with substantial economic presence, which means they must register for, collect, and remit sales and use tax. 

Marketplace Rules

In Mississippi, marketplace facilitators are liable for collecting and remitting sales tax on behalf of marketplace sellers who use their platform. Notably, marketplace sellers are not audited for sales made through marketplace facilitators and can be audited only for individual sales. 

However, the legislation provides an option for marketplace facilitators and sellers to contractually agree that the seller is responsible for collecting and remitting due taxes in cases where sellers have over USD 1 billion in annual US sales. In addition to exceeding this threshold, sellers must also provide proof to the marketplace facilitator that they are appropriately registered and notify the Department of Revenue that they are liable for sales tax.

Digital Goods and Services

Since the term tangible goods also includes prewritten software and specified digital products, it is apparent that the sale, rental, or lease of such products is subject to a 7% tax on gross income from the transactions. The term specified digital products includes electronically delivered digital audio-visual works, digital audio works, and digital books, such as sequences of images, with or without sound, musical or spoken sound recordings, and e-books, respectively.

The tax is due whenever a seller grants the right to use a digital product, whether permanently or temporarily, and regardless of whether ongoing payments are required. Regarding the sales of digital codes that allow later access to a digital product, they are taxed the same as the product itself.

Digital Marketplace

Under the Mississippi Marketplace Facilitator Act of 2020, a marketplace facilitator is any individual or business that helps a seller make a retail sale by listing or advertising taxable tangible goods, services, or digital products and by collecting payment from the customer and passing it on to the seller. This applies regardless of whether the facilitator provides these services directly or through third-party vendors, and whether the facilitator receives any compensation for doing so. 

Digital Platform Operator

Those who meet the criteria for marketplace facilitators and exceed the USD 250,000 threshold are responsible for collecting and remitting sales tax on behalf of sellers who use their platform. The Marketplace Facilitator Act holds facilitators liable for any taxes due on the sales made through the platform. However, if facilitators can prove they reasonably relied on incorrect or incomplete information provided by the seller, they may be relieved of liability for undercollecting.

Also, the statewide rules clarify that sales handled by third-party food delivery services, which deliver food from an unrelated restaurant to customers, are not treated as retail sales for tax purposes. In contrast, these delivery services must pay sales tax to the restaurant when buying the food for delivery, but they do not charge the customer sales tax on the delivery itself. 

Filing and Payment Requirements in Mississippi

Sales and use tax returns must be filed and paid by the 20th day after the end of the reporting period to avoid penalties and interest. Tax returns can be filed online through TAP and on paper. Filing and payment frequency depend on the total annual taxes remitted. 

Therefore, if the total annual due tax is below USD 600, annual tax returns and payments are required. Taxable persons who exceed USD 600 but remain below USD 3,599 in annual due taxes may file and pay quarterly. Finally, those with annual tax due above USD 3,599 must file and pay the taxes due each month.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Taxable persons that are negligent and fail to comply with sales and use tax rules and regulations may face a penalty of 10% of the unpaid tax or interest at a rate of 0.5% per month from the due date until paid, or, in some cases, both.

Since it is illegal to operate a business subject to tax without a proper license, to submit false or fraudulent tax returns, to aid someone in evading tax, or to use another person’s permit or exemptions to avoid taxes, those who violate these provisions may be found guilty of misdemeanor and may face a fine of up to USD 500, and imprisonment for up to six months