MISSISSIPPI LEGISLATURE
2022 Regular Session
To: Ways and Means
By: Representative Busby
AN ACT TO ALLOW PARTNERSHIPS, S CORPORATIONS OR SIMILAR PASS-THROUGH ENTITIES TO ELECT TO BE TAXED AS AN ELECTING PASS-THROUGH ENTITY FOR STATE INCOME TAX PURPOSES AND PAY INCOME TAX AT THE ENTITY LEVEL; TO PROVIDE THE MANNER BY WHICH A PARTNERSHIP, S CORPORATION OR SIMILAR PASS-THROUGH ENTITY MAY ELECT TO BE TAXED AS AN ELECTING PASS-THROUGH ENTITY; TO PROVIDE THAT EACH OWNER, MEMBER, PARTNER OR SHAREHOLDER OF AN ELECTING PASS-THROUGH ENTITY SHALL REPORT HIS OR HER PRO RATA OR DISTRIBUTIVE SHARE OF THE INCOME OF THE ELECTING PASS-THROUGH ENTITY BUT SHALL NOT BE LIABLE FOR INCOME TAX IMPOSED ON SUCH PRO RATA OR DISTRIBUTIVE SHARE; TO PROVIDE THAT EACH OWNER, MEMBER, PARTNER OR SHAREHOLDER OF AN ELECTING PASS-THROUGH ENTITY 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 WITH RESPECT TO THE CORRESPONDING TAXABLE YEAR; TO AMEND SECTIONS 27-7-25 AND 27-8-7, MISSISSIPPI CODE OF 1972, TO CONFORM TO THE PROVISIONS OF THIS ACT; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
(b) A partnership, S corporation or similar pass-through entity desiring to be taxed as an electing pass-through entity shall submit the appropriate form to the Department of Revenue at any time during the tax year or on or before the fifteenth day of the third month following the close of that taxable year for which the entity elects to be taxed as an electing pass-through entity. This election shall be binding for that taxable year and all taxable years thereafter and shall not be revoked unless the electing pass-through entity submits the appropriate form to the department at any time during a subsequent taxable year or on or before the fifteenth day of the third month following the close of that taxable year for which the entity elects to no longer be taxed as an electing pass-through entity. Both the election to become an electing pass-through entity and the revocation of that election shall be accomplished by a vote by or written consent of the members of the governing body of the entity as well as a vote by or written consent of the owners, members, partners or shareholders holding greater than fifty percent (50%) of the voting control of the entity, within the time prescribed in this subsection.
(c) Each owner, member, partner or shareholder of an electing pass-through entity shall report his or her pro rata or distributive share of the income of the electing pass-through entity but shall not be liable for the tax imposed under this chapter on such pro rata or distributive share of the income of the electing pass-through entity. Each owner, member, partner or shareholder of an electing pass-through entity shall be allowed a credit against the taxes imposed under this chapter in an amount equal to his or her pro rata or distributive share of tax paid by the electing pass-through entity with respect to the corresponding taxable year.
(2) The adjusted basis of the owners, members or partners of an electing pass-through entity in their ownership interests in the electing pass-through entity shall be calculated without regard to the election under this section.
SECTION 2. Section 27-7-25, Mississippi Code of 1972, is amended as follows:
27-7-25. (1) Individuals carrying on businesses in partnerships shall be liable for income tax only in their individual capacity, unless for federal purposes the partnership is taxable as a corporation. If so, then the partnership is also taxable as a corporation for state purposes and is subject to all of the corporate tax laws and regulations. The gross income of an individual partner shall be the gross income the partnership distributed on the same basis as net income or earnings may be distributed. If the preceding exception applies, then the partner will be treated as a shareholder in a corporation.
There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year.
The net income of the partnership shall be computed in the same manner and on the same basis as provided for individuals, provided no personal exemption shall be granted and, provided further, that husband and wife partnerships shall not be recognized for the purpose of this article, unless it can be proven that husband and wife have each contributed capital out of their separate estates, and not by gift, from one to the other.
In the case of partnerships, each partner that would otherwise be required to include more than twelve (12) months of income in a single taxable year may elect to include such excess in income in one (1) year or ratably over a period of four (4) taxable years.
In the event the individual partners fail to report and pay the taxes imposed according to this section, then the partnership and the general partners shall be jointly and severally liable for said tax liability and shall be assessed accordingly. However, the partnership and/or general partner shall not be liable if the partnership withholds five percent (5%) of the net gain or profit of the partnership for the tax year and remits the same to the commissioner. Such amounts paid to the commissioner shall be deemed to be payments of estimated tax of the partners and shall be allocated pro rata to the partners' taxpayer accounts. The commissioner may allow, or require, block or composite filing by a partnership, or withholding on a nonresident partner.
Magnetic media reporting may be required in a manner to be determined by the commissioner.
Partnership returns shall be filed in such manner and at such time as prescribed by law.
(2) For a partnership that has made an election under Section 1 of this act to be taxed as an electing pass-through entity, the partnership shall pay income tax as provided for in Section 1 of this act.
SECTION 3. Section 27-8-7, Mississippi Code of 1972, is amended as follows:
27-8-7. (1) An S corporation shall not be subject to the tax imposed by Section 27-7-5; however, for an S corporation that has made an election under Section 1 of this act to be taxed as an electing pass-through entity, the S corporation shall be subject to and pay such tax as provided for in Section 1 of this act.
(2) For purposes of Section 27-7-15, each shareholder's pro rata share of the S corporation's income attributable to the state, and each resident shareholder's pro rata share of the S corporation's income not attributable to the state, shall be taken into account by the shareholder in the manner provided in Section 1366 of the Code.
(3) For purposes of determining the amounts taken into account by the shareholders of an S corporation under subsection (2) of this section, the amount of any tax imposed on the S corporation under the Code shall not reduce the S corporation's income attributable to the state and income not attributable to the state.
SECTION 4. Section 1 of this act shall be codified as a new section in Chapter 7, Title 27, Mississippi Code of 1972.
SECTION 5. This act shall take effect and be in force from and after January 1, 2022.