How Does the Use Tax Diversion Process Work?
How is the Use Tax captured?
Mississippi’s use tax is captured by the Mississippi Department of Revenue as with other continuous tax revenue sources for the State General Fund. Yet, because of House Bill 1 from the 2018 Special Legislative Session, 20% of the State’s use tax will be diverted into a special fund created in the Mississippi State Treasury that’s also maintained by the State Treasurer as a separate and special fund apart from the State General Fund. In addtion, an additional 5% will also be captured and deposited into the Local System Bridge Program (LSBP) which is managed by the Mississippi Office of State Aid Road Construction.
Use Tax Diversion for County General Infrastructure Needs
The use tax diversion funds will be expended by the Mississippi Department of Revenue to provide funds to assist counties in the state in paying costs associated with the repair, maintenance and/or reconstruction of roads, streets and bridges in counties. Unexpended amounts remaining in the fund at the end of the fiscal year shall not lapse into the State General Fund, and any interest earned or investment earnings on amounts in the fund shall be deposited to the credit of the fund.
Funds provided to counties shall be allocated and distributed to counties in the following proportions:
- One-third (1/3) shall be allocated to all counties in equal shares,
- One-third (1/3) shall be allocated to counties based on proportions that the total number rural road miles in a county bears to the total number of rural road miles in all counties of the state, and
- One-third (1/3) shall be allocated to counties based on the proportion that the rural population of a county bears to the total rural population in all counties of the state, according to the latest federal decennial census.
The MS Department of Revenue shall distribute the funds on a semiannual basis with the distribution being made in the months of January and July.
Eligibility for Continued Recipients of Funds
From and after July 1. 2020, of the funds allocated for distribution to a county during a year under this section of HB-1, the maximum amount of such funds that may be distributed to the county during that year shall not exceed the amount of county funds expended by the county during the previous county fiscal year for purposes of repair, maintenance and/or reconstruction of roads, streets, and bridges. NOTE: Expenditure of the proceed of bonds issued by a county to pay costs associated with repair, maintenance and/or reconstruction of roads, streets and bridges shall not be considered when determining the amount of county funds expended by the county during the previous county fiscal year.
Use Tax Incremental Percentage Distribution
The “total”15% use tax diversion will not be distributed beginning January 2020. The total 15% use tax diversion will be phased in over a four (4) year period. Twenty-five percent (25%) of the total fifteen percent (15%) will be incrementally distributed on an annual basis until the full 15% is completely phased in.
Use Tax Diversion for the Local Systems Bridge Program (LSBP)
The use tax diversion for the Local System Bridge Program consists of a five percent (5%) diversion going directly into a county bridge program managed and maintained by the Mississippi Office of State Aid Road Construction. This diversion is deposited on a monthly basis into the LSBP Program. The 5% percent diversion will also be phased in annually over four years until the total amount is implemented. Twenty-five percent (25%) of the (5%) will be phased in each year. NOTE: For this section of the law, the statute states that once the total 5% diversion is in place, the LSBP fund shall have a minimum of one million six hundred sixty-six thousand six hundred dollars and sixty-seven cent ($1,666,666.67) deposited per month. That amount of revenue deposited per month equals twenty million annually ($20,000,000.00).
Note: When the four-year implementation cycle ends, and both the 15% diversion and 5% diversion is fully implemented, the anticipated/estimated annual dollar amount is $50 million for the 15% diversion and $20 million for the 5% diversion. To view a charted illustration of how the diversions will work, please click the image below.