MDOR issues guidance on income tax treatment of ERC

The Mississippi Department of Revenue communicated the following information regarding Employee Retention Credits to members of the Mississippi Society of CPAs:

“Mississippi does not have statutory authority to follow the federal Employee Retention Credit. Therefore, the full amount of wages paid to employees are deductible for state purposes. Miss Admin Code Title 35.III.5 Chapter 7 provides that Mississippi does not recognize federal regulations under Section 280 or 44B regarding tax credits allowed for work incentive programs or the employment of certain new employees.

“The amount of the federal credit received is considered taxable income for Mississippi purpose as there is no exemption available for it.”

The timing of the recognition of income from the ERC will be when received or accrued, depending on whether a taxpayer files on a cash-basis or accrual basis.

Pass-Through Entity Election

During the 2022 session, the Mississippi Legislature passed a bill allowing any partnership, S corporation or similar pass-through entity to choose to be taxed as an “electing pass-through entity” for state income tax purposes and to pay income tax at the entity level.

According to MDOR, “each owner, member, partner or shareholder of an electing pass-through entity shall report their pro rata or distributive share of the income from the electing pass-through entity and shall be allowed a credit against income taxes in an amount equal to his or her pro rata or distributive share of income tax paid by the electing pass-through entity for the corresponding taxable year.”

The legislation concerning the Pass-Through Entities Credit is being reviewed and implemented; however, MDOR did provide some guidelines for the credit:

  • The pass-through entity tax return is due on or before the 15th day of the third month following the close of the taxable year.
  • An extension filed by the entity extends the time to make the election.
  • There are no limitations on the number of times an entity may elect in or out.
  • An extension of time to make the election does not affect the underpayment penalties for quarterly estimated payments.
  • The amount of tax credit paid by the electing PTE is calculated using the corporate tax rates.
  • Similar to the credit for taxes paid to other states, the PTE credit will be applied before any other tax payments, tax withholding or refundable credits are applied.

Commercial Farmer Permit

The MDOR also sent out a reminder for commercial farmers regarding the Commercial Farmer Permit. This permit will replace the existing Farmer’s Affidavit, which will be invalid beginning Jan. 1, 2023. Commercial farmers can apply for the new permit on the MDOR’s TAP website.

The permit is required for commercial farmers to be eligible for the 1.5% sales tax rate when they purchase such items as farm tractors and implements, as well as the parts and labor for repair and maintenance of these items when used for agricultural purposes.

If you have questions about the ERC or the Commercial Farmer Permit, contact your HORNE tax advisor today.

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