MISSISSIPPI LEGISLATURE

1997 Regular Session

To: Ways and Means

By: Representative Formby

AN ACT TO AMEND SECTION 27-7-17, MISSISSIPPI CODE OF 1972, TO INCREASE THE INCOME TAX OPTIONAL STANDARD DEDUCTION FOR MARRIED INDIVIDUALS; TO AMEND SECTION 27-7-21, MISSISSIPPI CODE OF 1972, TO INCREASE FROM $9,500.00 TO $12,000.00 THE EXEMPTION FROM INCOME TAX ALLOWED FOR MARRIED INDIVIDUALS; TO AMEND SECTION 27-65-17, MISSISSIPPI CODE OF 1972, TO REDUCE THE TAX ON RETAIL SALES OF CERTAIN FOOD ITEMS, BY LOWERING THE TAX FROM SEVEN PERCENT TO SIX PERCENT; TO AMEND SECTION 27-65-75, MISSISSIPPI CODE OF 1972, TO PROVIDE THAT THE DISTRIBUTION OF SALES TAX REVENUES THAT ARE DIVERTED TO THE EDUCATIONAL ENHANCEMENT FUND SHALL NOT BE CHANGED AS A RESULT OF THE REDUCTION IN SALES TAX ON FOOD ITEMS; AND FOR RELATED PURPOSES. 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 27-7-17, Mississippi Code of 1972, is amended as follows:

27-7-17. In computing taxable income, there shall be allowed as deductions:

(1) Business deductions.

(a) Business expenses. All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; nonreimbursable traveling expenses incident to current employment, including a reasonable amount expended for meals and lodging while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition of the continued use or possession, for purposes of the trade or business of property to which the taxpayer has not taken or is not taking title or in which he had no equity. Expense incurred in connection with earning and distributing nontaxable income is not an allowable deduction. Limitations on entertainment expenses shall conform to the provisions of the Internal Revenue Code of 1986.

(b) Interest. All interest paid or accrued during the taxable year on business indebtedness, except interest upon the indebtedness for the purchase of tax-free bonds, or any stocks, the dividends from which are nontaxable under the provisions of this article; provided, however, in the case of securities dealers, interest payments or accruals on loans, the proceeds of which are used to purchase tax-exempt securities, shall be deductible if income from otherwise tax-free securities is reported as income. Investment interest expense shall be limited to investment income. Interest expense incurred for the purchase of treasury stock, to pay dividends, or incurred as a result of an undercapitalized affiliated corporation may not be deducted unless an ordinary and necessary business purpose can be established to the satisfaction of the commissioner. For the purposes of this paragraph, the phrase "interest upon the indebtedness for the purchase of tax-free bonds" applies only to the indebtedness incurred for the purpose of directly purchasing tax-free bonds and does not apply to any other indebtedness incurred in the regular course of the taxpayer's business. Any corporation, association, organization or other entity taxable under Section 27-7-23(c), shall allocate interest expense as provided in Section 27-7-23(c)(4)(H).

(c) Taxes. Taxes paid or accrued within the taxable year, except state and federal income taxes, excise taxes based on or measured by net income, estate and inheritance taxes, gift taxes, cigar and cigarette taxes, gasoline taxes, and sales and use taxes unless incurred as an item of expense in a trade or business or in the production of taxable income. In the case of an individual, taxes permitted as an itemized deduction under the provisions of subsection (2)(a) of this section are to be claimed thereunder.

(d) Business losses.

(i) Losses sustained during the taxable year not compensated for by insurance or otherwise, if incurred in trade or business, or nonbusiness transactions entered into for profit.

(ii) Limitations on losses from passive activities and rental real estate shall conform to the provisions of the Internal Revenue Code of 1986.

(e) Bad debts. Losses from debts ascertained to be worthless and charged off during the taxable year, if sustained in the conduct of the regular trade or business of the taxpayer; provided, that such losses shall be allowed only when the taxpayer has reported as income, on the accrual basis, the amount of such debt or account.

(f) Depreciation. A reasonable allowance for exhaustion, wear and tear of property used in the trade or business, or rental property, and depreciation upon buildings based upon their reasonable value as of March 16, 1912, if acquired prior thereto, and upon cost if acquired subsequent to that date.

(g) Depletion. In the case of mines, oil and gas wells, other natural deposits and timber, a reasonable allowance for depletion and for depreciation of improvements, based upon cost, including cost of development, not otherwise deducted, or fair market value as of March 16, 1912, if acquired prior to that date, such allowance to be made upon regulations prescribed by the commissioner, with the approval of the Governor.

(h) Contributions or gifts. Except as otherwise provided in subsection (2)(a) of this section for individuals, contributions or gifts made by corporations within the taxable year to corporations, organizations, associations or institutions, including Community Chest funds, foundations and trusts created solely and exclusively for religious, charitable, scientific or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inure to the benefit of any private stockholder or individual. This deduction shall be allowed in an amount not to exceed twenty percent (20%) of the net income. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the commissioner, with the approval of the Governor. Contributions made in any form other than cash shall be allowed as a deduction, subject to the limitations herein provided, in an amount equal to the actual market value of the contributions at the time the contribution is actually made and consummated.

(i) Reserve funds - insurance companies. In the case of insurance companies the net additions required by law to be made within the taxable year to reserve funds when such reserve funds are maintained for the purpose of liquidating policies at maturity.

(j) Annuity income. The sums, other than dividends, paid within the taxpayer year on policy or annuity contracts when such income has been included in gross income.

(k) Contributions to employee pension plans. Contributions made by an employer to a plan or a trust forming part of a pension plan, stock bonus plan, disability or death-benefit plan, or profit-sharing plan of such employer for the exclusive benefit of some or all of his, their, or its employees, or their beneficiaries, shall be deductible from his, their, or its income only to the extent that, and for the taxable year in which, the contribution is deductible for federal income tax purposes under the Internal Revenue Code of 1986 and any other provisions of similar purport in the Internal Revenue Laws of the United States, and the rules, regulations, rulings and determinations promulgated thereunder, provided that:

(i) The plan or trust be irrevocable.

(ii) The plan or trust constitute a part of a pension plan, stock bonus plan, disability or death-benefit plan, or profit-sharing plan for the exclusive benefit of some or all of the employer's employees and/or officers, or their beneficiaries, for the purpose of distributing the corpus and income of the plan or trust to such employees and/or officers, or their beneficiaries.

(iii) No part of the corpus or income of the plan or trust can be used for purposes other than for the exclusive benefit of employees and/or officers, or their beneficiaries.

Contributions to all plans or to all trusts of real or personal property (or real and personal property combined) or to insured plans created under a retirement plan for which provision has been made under the laws of the United States of America, making such contributions deductible from income for federal income tax purposes, shall be deductible only to the same extent under the Income Tax Laws of the State of Mississippi.

(l) Net operating loss carrybacks and carryovers.

(i) A net operating loss for any taxable year ending after December 31, 1991, shall be a net operating loss carryback for one (1) taxable year preceding the taxable year of the loss. If the net operating loss for any taxable year is not exhausted by carrybacks for one (1) taxable year preceding the taxable year of the loss, then there shall be a net operating loss carryover to each of the fifteen (15) taxable years following the taxable year of the loss beginning with any taxable year after December 31, 1991.

(ii) A net operating loss for any taxable year ending after December 31, 1992, shall be a net operating loss carryback to each of the two (2) taxable years preceding the taxable year of the loss. If the net operating loss for any taxable year is not exhausted by carrybacks to the two (2) taxable years preceding the taxable year of the loss, then there shall be a net operating loss carryover to each of the fifteen (15) taxable years following the taxable year of the loss beginning with any taxable year after December 31, 1991.

(iii) A net operating loss for any taxable year ending after December 31, 1993, and taxable years thereafter, shall be a net operating loss carryback to each of the three (3) taxable years preceding the taxable year of the loss. If the net operating loss for any taxable year is not exhausted by carrybacks to the three (3) taxable years preceding the taxable year of the loss, then there shall be a net operating loss carryover to each of the fifteen (15) taxable years following the taxable year of the loss beginning with any taxable year after December 31, 1991.

The term "net operating loss," for the purposes of this paragraph, shall be the excess of the deductions allowed over the gross income; provided, however, the following deductions shall not be allowed in computing same:

1. No net operating loss deduction shall be allowed.

2. No personal exemption deduction shall be allowed.

3. Allowable deductions which are not attributable to taxpayer's trade or business shall be allowed only to the extent of the amount of gross income not derived from such trade or business.

Any taxpayer entitled to a carryback period as provided by this paragraph may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year ending after December 31, 1991. The election shall be made in the manner prescribed by the State Tax Commission and shall be made by the due date, including extensions of time, for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. The election, once made for any taxable year, shall be irrevocable for that taxable year.

(m) Amortization of pollution or environmental control facilities.

(i) Allowance of deduction. Every taxpayer, at his election, shall be entitled to a deduction with respect to the amortization of any certified pollution or environmental control facility (as defined in subsection (1)(m)(iv) of this section), based on a period of sixty (60) months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis of the pollution or environmental control facility at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction provided in this subparagraph shall be in lieu of the depreciation deduction with respect to such pollution or environmental control facility for such month provided by subsection (1)(f) of this section. The sixty-month period shall begin, as to any certified pollution or environmental control facility, at the election of the taxpayer, with the month following the month in which such facility was completed or acquired, or with the succeeding taxable year.

(ii) Election of amortization. The election of the taxpayer to take the amortization deduction authorized in this subsection shall be made only after certification of such pollution or environmental control facility by the Mississippi Air and Water Pollution Control Commission and notice of such certification is given as further provided in subsection (1)(m)(viii) of this section.

(iii) Termination of amortization deduction. A taxpayer which has elected under subsection (1)(m)(ii) of this section to take the amortization deduction provided in subsection (1)(m)(i) of this section may, at any time after making such election, discontinue the amortization deduction with respect to the remainder of the amortization period, such discontinuance to begin as of the beginning of any month specified by the taxpayer in a notice in writing filed with the Chairman of the State Tax Commission before the beginning of such month. The depreciation deduction provided under subsection (1)(f) of this section shall be allowed, beginning with the first month as to which the amortization deduction does not apply, and the taxpayer shall not be entitled to any further amortization deduction under subsection (1)(m) with respect to such pollution or environmental control facility.

(iv) Definitions. For purposes of subsection (1)(m) of this section:

1. Certified pollution or environmental control facility. The term "certified pollution or environmental control facility" means a new identifiable treatment facility which is used in connection with a plant or other property to abate or control noise, water or atmospheric pollution or contamination by removing, altering, disposing, or storing of pollutants, contaminants, wastes, or heat and which has been certified to by the Mississippi Air and Water Pollution Control Commission, as provided in subsection (1)(m)(viii) of this section, as having been constructed, reconstructed, erected, or acquired in conformity with the Mississippi program or requirements for abatement or control of noise, water or atmospheric pollution or contamination.

2. New identifiable treatment facility. For purposes of subsection (1)(m)(iv)1 of this section, the term "new identifiable treatment facility" includes only tangible property (not including a building and its structural components, other than a building which is exclusively a treatment facility) which is of a character subject to the allowance for depreciation provided in subsection (1)(f) of this section, which is identifiable as a treatment facility, and which is property:

a. The construction, reconstruction or erection of which is completed by the taxpayer after December 31, 1972; or

b. Acquired after December 31, 1972, if the original use of the property commences with the taxpayer and commences after such date.

In applying the provisions of subsection (1)(m) of this section in the case of property described in subsection (1)(m)(iv)2a of this section, there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1972.

3. Plant or other property. For purposes of subsection (1)(m)(iv)1 of this section, the phrase "plant or other property" means any tangible property whether or not such property is used in the trade or business or held for the production of income.

4. Buildings. For purposes of subsection (1)(m)(iv)2 of this section, the term "building" generally means any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is to provide shelter or housing, or to provide working, office, parking, display, or sales space. The term includes structures such as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, stores, and other similarly used structures. The term does not include:

a. A structure which is essentially an item of machinery or equipment; or

b. An enclosure which is so closely combined with the machinery or equipment which it supports, houses or serves that it must be replaced, retired or abandoned contemporaneously with such machinery or equipment, and which is depreciated over the life of such machinery or equipment.

5. Structural components. For purposes of subsection (1)(m)(iv)2 of this section, the term "structural components" includes chimneys and other components relating to the operating or maintenance of a building. The term "structural components" does not include machinery or a device which serves no function other than the abatement or control of noise, water or atmospheric pollution.

6. Amortizable basis. For purposes of subsection (1)(m)(i) of this section, the "amortizable basis" of a certified pollution or environmental control facility is the adjusted basis of such facility for purposes of determining gain (Section 27-7-9) reduced by the cost of any pollution or environmental control facility:

a. Completed or acquired by the taxpayer prior to December 31, 1972;

b. Which is a profit-making abatement works; and

c. Requiring allocation of nonpollution or environmental control equipment.

(v) Profit-making abatement works. The Mississippi Air and Water Pollution Control Commission shall not certify any property under the provisions of subsection (1)(m) of this section to the extent it appears that by reason of profits derived through the recovery of wastes or otherwise in the operation of such property, its costs will be recovered over its actual useful life.

(vi) Application for certification. Applications for certification for the amortization deduction authorized under subsection (1)(m) of this section for pollution or environmental control facilities shall be submitted to the Mississippi Air and Water Pollution Control Commission in such manner as such commission may prescribe; shall be signed by the applicant or agent thereof; and shall include the following information:

1. Name, address and federal employer identifying number of the applicant;

2. Type and narrative description of the new identifiable facility for which certification is (or will be) sought, including a copy of schematic or engineering drawings, and a description of the function and operation of such facility;

3. Address (or proposed address) of facility location;

4. A general description of the operation in connection with which such facility is (or will be) used and a description of the specific process or processes resulting in discharges or emissions which are (or will be) controlled by the facility;

5. If the facility is (or will be) used in connection with more than one (1) plant or other property, a description of the operations of the facility in respect to each plant or other property, including a reasonable allocation of the costs of the facility among the plants being serviced, and a description of the reasoning and accounting methods used to arrive at such allocation;

6. Description of the effect of such facility in terms of type and quantity of noise, pollutants, contaminants, wastes or heat, removed, altered, stored, or disposed of by such facility;

7. If the facility performs a function other than removal, alteration, storage, or disposal of pollutants, contaminants, wastes or heat, or noise, a description of all functions performed by the facility, including a reasonable identification of the costs of the facility allocable to removal, alteration, storage, or disposal of pollutants, contaminants, wastes or heat, or noise, and a description of the reasoning and the accounting methods used to arrive at such allocation;

8. Date when such construction, reconstruction, or erection will be completed or when such facility was (or will be) acquired;

9. Date when such facility is placed (or is intended to be placed) in operation;

10. Cost of construction, acquisition, installation, operation, and maintenance of the facility;

11. Estimated profits reasonably expected to be derived through the recovery of wastes or otherwise in the operation of the facility; and

12. Such other information as the Mississippi Air and Water Pollution Control Commission deems necessary for certification.

(vii) Requirements for certification. The Mississippi Air and Water Pollution Control Commission will certify a facility if it makes the following determinations:

1. It removes, alters, disposes of, or stores pollutants, contaminants, wastes or heat, or noise, which, but for the facility, would be released into the environment.

2. The facility furthers the general policies of Mississippi in the prevention and abatement of pollution and noise.

3. The facility is suitable and reasonably adequate to satisfy the interests and purposes of the Mississippi Air and Water Pollution Control Commission Law, and regulations thereunder.

4. The applicant has complied with all the other requirements of subsection (1)(m) of this section and has submitted all requested information.

(viii) Certification. When the Mississippi Air and Water Pollution Control Commission has certified a facility as a pollution or environmental control facility under the requirements and provisions of subsection (1)(m) of this section, a notice of certification shall be given by mail to the applicant, the Chairman of the State Tax Commission, and the tax assessor of the county or counties in which the facility is located, said notice of certification to contain such information and data as may be required by the State Tax Commission in the proper administration and control of the amortization deduction authorized by subsection (1)(m) of this section.

(ix) Revocation. Certification under subsection (1)(m) of this section may be revoked by the Mississippi Air and Water Pollution Control Commission on thirty (30) days' written notice to the applicant, served by certified mail, whenever such commission shall determine that the facility in question is no longer being operated consistent with the requirements for certification (subsection (1)(m)(vii) of this section) in effect at the time the facility was placed in service. Within such period of thirty (30) days, the applicant may submit to the Mississippi Air and Water Pollution Control Commission such evidence, data, or other written materials as the applicant may deem appropriate to show why the certification under subsection (1)(m) of this section should not be revoked. Notification of a revocation under this subparagraph shall be given to the Chairman of the State Tax Commission. The Mississippi Air and Water Pollution Control Commission shall consider the issues presented by the applicant, according to law and the facts, and shall within thirty (30) days from the date of the applicant's petition make a determination and notify the applicant of its findings, with a copy of such findings to the Chairman of the State Tax Commission.

(x) Appeals. An applicant may appeal any decision of the Mississippi Air and Water Pollution Control Commission which:

1. Denies certification; or

2. Disapproves the applicant's suggested method of allocating cost pursuant to subsection (1)(m)(vi) of this section.

The petition for an appeal to the Mississippi Air and Water Pollution Control Commission shall be in writing and shall be filed with such commission within thirty (30) days from the date of the decision to which the appeal applies. The Mississippi Air and Water Pollution Control Commission shall promptly consider the petition, grant a hearing, and notify the petitioner of the time and place fixed for the hearing. At said hearing, the Mississippi Air and Water Pollution Control Commission shall try the issues presented, according to the law and facts and shall, as soon as practical thereafter, notify the applicant of its determination.

(n) Dividend distributions - investment trusts. Dividends distributed by an investment trust defined in Section 79-15-3, if the dividend distributions meet the requirements of Section 857 or are otherwise deductible under Section 858 or 860, federal Internal Revenue Code of 1986, as amended. The deductions allowed in this paragraph shall be effective for the 1985 taxable year of the investment trust and for each taxable year thereafter.

(2) Individual nonbusiness deductions.

(a) The amount allowable for individual nonbusiness itemized deductions for federal income tax purposes, except the deduction for state income taxes paid, where the individual is eligible to elect, for the taxable year, to itemize deductions on his federal return; or

(b) In lieu of the individual nonbusiness itemized deductions authorized in paragraph (a), for all purposes other than ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, an optional standard deduction of:

(i) Three Thousand Four Hundred Dollars ($3,400.00) in the case of married individuals filing a joint or combined return for calendar years through 1997, and thereafter as follows: Three Thousand Eight Hundred Dollars ($3,800.00) for calendar year 1998, Four Thousand Two Hundred Dollars ($4,200.00) for calendar year 1999, and Four Thousand Six Hundred Dollars ($4,600.00) for each calendar year thereafter;

(ii) One Thousand Seven Hundred Dollars ($1,700.00) in the case of married individuals filing separate returns for calendar years through 1997, and thereafter as follows: One Thousand Nine Hundred Dollars ($1,900.00) for calendar year 1998, Two Thousand One Hundred Dollars ($2,100.00) for calendar year 1999, and Two Thousand Three Hundred Dollars ($2,300.00) for each calendar year thereafter;

(iii) Three Thousand Four Hundred Dollars ($3,400.00) in the case of a head of family; or

(iv) Two Thousand Three Hundred Dollars ($2,300.00) in the case of an individual who is not married.

In the case of a husband and wife living together, having separate incomes, and filing combined returns, the standard deduction authorized may be divided in any manner they choose. In the case of separate returns by a husband and wife, the standard deduction shall not be allowed to either if the taxable income of one (1) of the spouses is determined without regard to the standard deduction.

(c) A nonresident individual shall be allowed the same individual nonbusiness deductions as are authorized for resident individuals in paragraph (a) or (b) of this subsection; however, the nonresident individual is entitled only to that proportion of the individual nonbusiness deductions as his net income from sources within the State of Mississippi bears to his total or entire net income from all sources.

(3) Nothing in this section shall permit the same item to be deducted more than once, either in fact or in effect.

SECTION 2. Section 27-7-21, Mississippi Code of 1972, is amended as follows:

27-7-21. (a) Allowance of deductions. In the case of a resident individual, the exemptions provided by this section, as applicable to individuals, shall be allowed as deductions in computing taxable income.

(b) Single individuals. In the case of a single individual, a personal exemption of Five Thousand Two Hundred Fifty Dollars ($5,250.00) for the 1979 and 1980 calendar years and Six Thousand Dollars ($6,000.00) for each calendar year thereafter.

(c) Married individuals. In the case of married individuals living together, a joint personal exemption of Eight Thousand Dollars ($8,000.00) for the 1979 and 1980 calendar years, * * * Nine Thousand Five Hundred Dollars ($9,500.00) for * * * calendar years 1981 through 1997, Ten Thousand Five Hundred Dollars ($10,500.00) for calendar year 1998, Eleven Thousand Five Hundred Dollars ($11,500.00) for calendar year 1999, and Twelve Thousand Dollars ($12,000.00) for each calendar year thereafter. A husband and wife living together shall receive but one (1) personal exemption of Eight Thousand Dollars ($8,000.00) for the 1979 and 1980 calendar years, * * * Nine Thousand Five Hundred Dollars ($9,500.00) for * * * calendar years 1981 through 1997, Ten Thousand Five Hundred Dollars ($10,500.00) for calendar year 1998, Eleven Thousand Five Hundred Dollars ($11,500.00) for calendar year 1999, and Twelve Thousand Dollars ($12,000.00) for each calendar year thereafter against their aggregate income.

(d) Head of family individuals. In the case of a head of family individual, a personal exemption of Eight Thousand Dollars ($8,000.00) for the 1979 and 1980 calendar years and Nine Thousand Five Hundred Dollars ($9,500.00) for each calendar year thereafter. The term "head of family" means an individual who is single, or married but not living with his spouse for the entire taxable year, who maintains a household which constitutes the principal place of abode of himself and one or more individuals who are dependents under the provisions of Section 152(a) of the Internal Revenue Code of 1954, as amended. The head of family individual shall be entitled to the additional dependent exemption as provided in subsection (e) of this section only to the extent of dependents in excess of the one (1) dependent needed to qualify as head of family.

(e) Additional exemption for dependents. In the case of any individual having a dependent, other than husband or wife, an additional personal exemption of One Thousand Five Hundred Dollars ($1,500.00) for each such dependent, except as otherwise provided in subsection (d) of this section. The term "dependent" as used in this subsection shall mean any person or individual who qualifies as a dependent under the provisions of Section 152, Internal Revenue Code of 1954, as amended.

(f) Additional exemption for taxpayer or spouse aged 65 or more. In the case of any taxpayer or the spouse of the taxpayer who has attained the age of sixty-five (65) before the close of his taxable year, an additional exemption of One Thousand Five Hundred Dollars ($1,500.00).

(g) Additional exemption for blindness of taxpayer or spouse. In the case of any taxpayer or the spouse of the taxpayer who is blind at the close of the taxable year, an additional exemption of One Thousand Five Hundred Dollars ($1,500.00). For the purpose of this subsection, an individual is blind only if his central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than twenty (20) degrees.

(h) Husband and wife -- claiming exemptions. In the case of husband and wife living together and filing combined returns, the personal and additional exemptions authorized and allowed by this section may be taken by either, or divided between them in any manner they may choose. If the husband and wife fail to choose, the commissioner shall divide the exemptions between husband and wife in an equitable manner. In the case of a husband and wife filing separate returns, the personal and additional exemptions authorized and allowed by this section shall be divided equally between the spouses.

(i) Nonresidents. A nonresident individual shall be allowed the same personal and additional exemptions as are authorized for resident individuals in subsection (a) of this section; however, the nonresident individual is entitled only to that proportion of the personal and additional exemptions as his net income from sources within the State of Mississippi bears to his total or entire net income from all sources.

A nonresident individual who is married and whose spouse has income from independent sources must declare the joint income of himself and his spouse from sources within and without Mississippi and claim as a personal exemption that proportion of the authorized personal and additional exemptions which the total net income from Mississippi sources bears to the total net income of both spouses from all sources. If both spouses have income from sources within Mississippi and wish to file separate returns, their combined personal and additional exemptions shall be that proration of the exemption which their combined net income from Mississippi sources is of their total combined net income from all sources. The amount of the personal and additional exemptions so computed may be divided between them in any manner they choose.

In the case of married individuals where one (1) spouse is a resident and the other is a nonresident, the personal exemption of the resident individual shall be prorated on the same basis as if both were nonresidents having net income from within and without the State of Mississippi.

For the purpose of this subsection, the term "net income" means gross income less business expenses incurred in the taxpayer's regular trade or business and computed in accordance with the provisions of the Mississippi Income Tax Law.

(j) Part-year residents. An individual who is a resident of Mississippi for only a part of his taxable year by reason of either moving into the state or moving from the state shall be allowed the same personal and additional exemptions as authorized for resident individuals in subsection (a) of this section; the part-year resident shall prorate his exemption on the same basis as nonresidents having net income from within and without the state.

(k) Estates. In the case of an estate, a specific exemption of Six Hundred Dollars ($600.00).

(l) Trusts. In the case of a trust which, under its governing instrument, is required to distribute all of its income currently, a specific exemption of Three Hundred Dollars ($300.00). In the case of all other trusts, a specific exemption of One Hundred Dollars ($100.00).

(m) Corporations, foundation, joint ventures, associations. In the case of a corporation, foundation, joint venture, or association taxable herein, there shall be allowed no specific exemption.

(n) Status. The status on the last day of the taxable year, except in the case of the head of family as provided in subsection (d) of this section, shall determine the right to the exemptions provided in this section; provided, that a taxpayer shall be entitled to such exemptions, otherwise allowable, if the husband or wife or dependent has died during the taxable year.

(o) Fiscal-year taxpayers. Individual taxpayers reporting on a fiscal year basis shall prorate their exemptions in a manner established by regulations promulgated by the commissioner.

SECTION 3. Section 27-65-17, Mississippi Code of 1972, is amended as follows:

27-65-17. (1) Upon every person engaging or continuing within this state in the business of selling any tangible personal property whatsoever there is hereby levied, assessed and shall be collected a tax equal to seven percent (7%) of the gross proceeds of the retail sales of the business, except as otherwise provided herein.

(a) Retail sales of farm tractors shall be taxed at the rate of one percent (1%) when made to farmers for agricultural purposes. Retail sales of other self-propelled farm implements, or farm implements used as attachments to or drawn by a tractor, or implements which are drawn by animals, when made to farmers for agricultural purposes shall be taxed at the rate of three percent (3%). The three percent (3%) rate shall also apply to retail sales of brooders, feeders and waterers to chicken farmers for use in chicken houses to produce poultry for the market, sales of mechanical and gravity feeders and waterers to livestock producers, sales of mechanical milking machines, milk tanks and coolers used in the production of milk for sale and sales of aerators to domestic fish farmers for use in the raising of domesticated fish as defined in Section 69-7-501. The three percent (3%) rate shall also apply to all equipment used in logging, pulpwood operations or tree farming which is either (a) self-propelled or which is (b) mounted so that it is (i) permanently attached to other equipment which is self-propelled or (ii) permanently attached to other equipment drawn by a vehicle which is self-propelled.

(b) Retail sales of aircraft, automobiles, trucks, truck-tractors, semitrailers and mobile homes shall be taxed at the rate of three percent (3%).

(c) Sales of manufacturing machinery or manufacturing machine parts when made to a manufacturer or custom processor for plant use only when said machinery and machine parts will be used exclusively and directly within this state in manufacturing a commodity for sale, rental or in processing for a fee shall be taxed at the rate of one and one-half percent (1-1/2%).

(d) Sales of materials for use in track and track structures to a railroad whose rates are fixed by the Interstate Commerce Commission or the Mississippi Public Service Commission shall be taxed at the rate of three percent (3%).

(e) Sales of tangible personal property to electric power associations for use in the ordinary and necessary operation of their generating or distribution systems shall be taxed at the rate of one percent (1%).

(f) Wholesale sales of beer shall be taxed at the rate of seven percent (7%), and the retailer shall file a return and compute the retail tax on retail sales but may take credit for the amount of the tax paid to the wholesaler on said return covering the subsequent sales of same property, provided adequate invoices and records are maintained to substantiate the credit.

(g) Wholesale sales of food and drink for human consumption to full service vending machine operators to be sold through vending machines located apart from and not connected with other taxable businesses shall be taxed at the rate of eight percent (8%).

(h) Retail sales of food for human consumption, that are not otherwise exempt from sales tax, shall be taxed at the following rates:

(i) From July 1, 1998, through June 30, 1999, at the rate of six and one-half percent (6-1/2%);

(ii) From July 1, 1999, and each succeeding year thereafter, six percent (6%).

For purposes of this paragraph (h), "food for human consumption" means any food item that would be eligible for purchase with food stamps issued by the United States Department of Agriculture or other federal agency.

(i) A manufacturer selling at retail in this state shall be required to make returns of the gross proceeds of such sales and pay the tax imposed in this section.

(j) Any person exercising any privilege taxable under Section 27-65-15 and selling his natural resource products at wholesale or to exempt persons shall pay the tax levied by said section in lieu of the tax levied by this section.

(2) From and after January 1, 1995, retail sales of private carriers of passengers and light carriers of property, as defined in Section 27-51-101, shall be taxed an additional two percent (2%).

SECTION 4. Section 27-65-75, Mississippi Code of 1972, is amended as follows:

27-65-75. On or before the fifteenth day of each month, the revenue collected under the provisions of this chapter during the preceding month shall be paid and distributed as follows:

(1) On or before August 15, 1992, and each succeeding month thereafter through July 15, 1993, eighteen percent (18%) of the total sales tax revenue collected during the preceding month under the provisions of Sections 27-65-15, 27-65-19(3) and 27-65-21, except that collected under the provisions of Sections 27-65-15, 27-65-19(3) and 27-65-21, on business activities within a municipal corporation shall be allocated for distribution to such municipality and paid to such municipal corporation. On or before August 15, 1993, and each succeeding month thereafter, eighteen and one-half percent (18-1/2%) of the total sales tax revenue collected during the preceding month under the provisions of this chapter, except that collected under the provisions of Sections 27-65-15, 27-65-19(3) and 27-65-21, on business activities within a municipal corporation shall be allocated for distribution to such municipality and paid to such municipal corporation.

A municipal corporation, for the purpose of distributing the tax under this subsection, shall mean and include all incorporated cities, towns and villages.

Monies allocated for distribution and credited to a municipal corporation under this subsection may be pledged as security for any loan received by the municipal corporation for the purpose of capital improvements as authorized under Section 57-1-303, or loans as authorized under Section 4 of Senate Bill No. 3229, 1995 Regular Session (Section 57-44-7), or water systems improvements as authorized under House Bill No. 209, 1995 Regular Session (Section 41-3-15).

In any county having a county seat which is not an incorporated municipality, the distribution provided hereunder shall be made as though the county seat was an incorporated municipality; however, the distribution to such municipality shall be paid to the county treasury wherein the municipality is located and such funds shall be used for road, bridge and street construction or maintenance therein.

(2) On or before September 15, 1987, and each succeeding month thereafter, from the revenue collected under this chapter during the preceding month One Million One Hundred Twenty-five Thousand Dollars ($1,125,000.00) shall be allocated for distribution to municipal corporations as defined under subsection (1) of this section in the proportion that the number of gallons of gasoline and diesel fuel sold by distributors to consumers and retailers in each such municipality during the preceding fiscal year bears to the total gallons of gasoline and diesel fuel sold by distributors to consumers and retailers in municipalities statewide during the preceding fiscal year. The State Tax Commission shall require all distributors of gasoline and diesel fuel to report to the commission monthly the total number of gallons of gasoline and diesel fuel sold by them to consumers and retailers in each municipality during the preceding month. The State Tax Commission shall have the authority to promulgate such rules and regulations as is necessary to determine the number of gallons of gasoline and diesel fuel sold by distributors to consumers and retailers in each municipality. In determining the percentage allocation of funds under this subsection for the fiscal year beginning July 1, 1987, and ending June 30, 1988, the State Tax Commission may consider gallons of gasoline and diesel fuel sold for a period of less than one (1) fiscal year. For the purposes of this subsection, the term "fiscal year" means the fiscal year beginning July 1 of a year.

(3) On or before September 15, 1987, and on or before the fifteenth day of each succeeding month, until the date specified in Section 65-37-35, the proceeds derived from contractors' taxes levied under Section 27-65-21 on contracts for the construction or reconstruction of highways designated under the Four-Lane Highway Program created under Section 65-3-97 shall be deposited into the State Treasury to the credit of the State Highway Fund to be used to fund such Four-Lane Highway Program. The Mississippi Department of Transportation shall provide to the State Tax Commission such information as is necessary to determine the amount of proceeds to be distributed under this subsection.

(4) On or before August 15, 1994, and on or before the fifteenth day of each succeeding month, from the proceeds of gasoline, diesel fuel or kerosene taxes as provided in Section 27-5-101(a)(ii)1, Four Million Dollars ($4,000,000.00) shall be deposited in the State Treasury to the credit of a special fund designated as the "State Aid Road Fund," created by Section 65-9-17. Such funds shall be pledged to pay the principal of and interest on state aid road bonds heretofore issued under Sections 19-9-51 through 19-9-77, in lieu of and in substitution for the funds heretofore allocated to counties under this section. Such funds may not be pledged for the payment of any state aid road bonds issued after April 1, 1981; however, this prohibition against the pledging of any such funds for the payment of bonds shall not apply to any bonds for which intent to issue such bonds has been published, for the first time, as provided by law prior to March 29, 1981. From the amount of taxes paid into the special fund pursuant to this subsection and subsection (9) of this section, there shall be first deducted and paid the amount necessary to pay the expenses of the Office of State Aid Road Construction, as authorized by the Legislature for all other general and special fund agencies. The remainder of the fund shall be allocated monthly to the several counties in accordance with the following formula:

(a) One-third (1/3) shall be allocated to all counties in equal shares;

(b) One-third (1/3) shall be allocated to counties based on the proportion that the total number of rural road miles in a county bears to the total number of rural road miles in all counties of the state; and

(c) One-third (1/3) shall be allocated to counties based on the proportion that the rural population of the county bears to the total rural population in all counties of the state, according to the latest federal decennial census.

For the purposes of this subsection, the term "gasoline, diesel fuel or kerosene taxes" means such taxes as defined in paragraph (f) of Section 27-5-101.

The amount of funds allocated to any county under this subsection for any fiscal year after Fiscal Year 1994 shall not be less than the amount allocated to such county for Fiscal Year 1994. Monies allocated to a county from the State Aid Road Fund for Fiscal Year 1995 or any fiscal year thereafter that exceed the amount of funds allocated to that county from the State Aid Road Fund for Fiscal Year 1994, first must be expended by the county for replacement or rehabilitation of bridges on the state aid road system that have a sufficiency rating of less than twenty-five (25), according to National Bridge Inspection standards, before such monies may be approved for expenditure by the State Aid Road Engineer on other projects that qualify for the use of state aid road funds.

Any reference in the general laws of this state or the Mississippi Code of 1972 to Section 27-5-105 shall mean and be construed to refer and apply to subsection (4) of Section 27-65-75.

(5) One Million Six Hundred Sixty-six Thousand Six Hundred Sixty-six Dollars ($1,666,666.00) each month shall be paid into the special fund known as the "State Public School Building Fund" created and existing under the provisions of Sections 37-47-1 through 37-47-67. Such payments into said fund are to be made on the last day of each succeeding month hereafter.

(6) An amount each month beginning August 15, 1983, through November 15, 1986, as specified in Section 6 of Chapter 542, Laws of 1983, shall be paid into the special fund known as the Correctional Facilities Construction Fund created in Section 6 of Chapter 542, Laws of 1983.

(7) On or before August 15, 1992, and each succeeding month thereafter, two and two hundred sixty-six one-thousandths percent (2.266%) of the total sales tax revenue collected during the preceding month under the provisions of this chapter, except that collected under the provisions of Section 27-65-17(2) shall be deposited by the commission into the School Ad Valorem Tax Reduction Fund created pursuant to Section 37-61-35.

(8) (a) On or before August 15, 1992, and each succeeding month thereafter, nine and seventy-three one-thousandths percent (9.073%) of the total sales tax revenue collected during the preceding month under the provisions of this chapter, except that collected under the provisions of Section 27-65-17(2), shall be deposited into the Education Enhancement Fund created pursuant to Section 37-61-33.

(b) Notwithstanding any other provision of this section to the contrary, on or before August 15, 1998, and each succeeding month thereafter, the sales tax revenue collected during the preceding month shall be allocated to the Education Enhancement Fund based on the proportion that the distribution would have been, had the reductions in sales tax on food items provided in Section 27-65-17 (1)(h), as amended by House Bill No. , 1997 Regular Session, not occurred. The amount of sales tax revenue necessary to offset the reduction in sales tax on food items and make the distributions as specified in this subsection (8) shall not be paid into the State Treasury to the credit of the General Fund, but shall be used to enable the distributions under this subsection (8) to be made as if the reduction had not occurred.

(9) On or before August 15, 1994, and each succeeding month thereafter, from the revenue collected under this chapter during the preceding month, Two Hundred Fifty Thousand Dollars ($250,000.00) shall be paid into the State Aid Road Fund.

(10) On or before August 15, 1994, and each succeeding month thereafter through August 15, 1995, from the revenue collected under this chapter during the preceding month, Two Million Dollars ($2,000,000.00) shall be deposited into the Motor Vehicle Ad Valorem Tax Reduction Fund established in Section 27-51-105.

(11) Notwithstanding any other provision of this section to the contrary, on or before February 15, 1995, and each succeeding month thereafter, the sales tax revenue collected during the preceding month under the provisions of Section 27-65-17(2) shall be deposited, without diversion, into the Motor Vehicle Ad Valorem Tax Reduction Fund established in Section 27-51-105.

(12) Notwithstanding any other provision of this section to the contrary, on or before August 15, 1995, and each succeeding month thereafter, the sales tax revenue collected during the preceding month under the provisions of Section 27-65-17(1) on retail sales of private carriers of passengers and light carriers of property, as defined in Section 27-51-101, shall be deposited, after diversion, into the Motor Vehicle Ad Valorem Tax Reduction Fund established in Section 27-51-105.

(13) On or before July 15, 1994, and on or before the fifteenth day of each succeeding month thereafter, that portion of the avails of the tax imposed in Section 27-65-22, which is derived from activities held on the Mississippi state fairgrounds complex, shall be paid into a special fund hereby created in the State Treasury and shall be expended pursuant to legislative appropriations solely to defray the costs of repairs and renovation at such Trade Mart and Coliseum.

(14) The remainder of the amounts collected under the provisions of this chapter shall be paid into the State Treasury to the credit of the General Fund.

(15) It shall be the duty of the municipal officials of any municipality which expands its limits, or of any community which incorporates as a municipality, to notify the commissioner of such action thirty (30) days before the effective date. Failure to so notify the commissioner shall cause such municipality to forfeit the revenue which it would have been entitled to receive during this period of time when the commissioner had no knowledge of the action. If any funds have been erroneously disbursed to any municipality or any overpayment of tax is recovered by the taxpayer, the commissioner may make correction, and adjust the error or overpayment with such municipality by withholding the necessary funds from any subsequent payment to be made to the municipality.

SECTION 5. Nothing in this act shall affect or defeat any claim, assessment, appeal, suit, right or cause of action for taxes due or accrued under the income and sales tax laws before the date on which this act becomes effective, whether such claims, assessments, appeals, suits or actions have been begun before the date on which this act becomes effective or are begun thereafter; and the provisions of the income tax and sales tax laws are expressly continued in full force, effect and operation for the purpose of the assessment, collection and enrollment of liens for any taxes due or accrued and the execution of any warrant under such laws before the date on which this act becomes effective, and for the imposition of any penalties, forfeitures or claims for failure to comply with such laws.

SECTION 6. This act shall take effect and be in force from and after July 1, 1997.