CRI wants to sharpen your focus by highlighting potential money-saving state tax opportunities you may not be seeing through the Mississippi research skills tax credit and a contractor sales tax consideration related to component materials.
A Prescription for Savings: The Mississippi Research Skills Tax Credit
You could receive an additional tax credit because of your “technical” employees. A Mississippi research skills tax credit is available and can offset up to half of your state income taxes due for the year if your business qualifies. The credit is for wages paid to new net “technical” employees (engineers, chemists, etc.) for their first five years of employment. The credit is $1,000 per employee, per year, for five years.
If you hire new employees, then they could qualify for the research skills tax credit if they meet all of the following qualifications:
- a Bachelor’s degree in a scientific or technical field,
- two years of related experience, and
- hired for a new position (i.e., not replacing a previous employee).
You can file amended returns to take this credit if you have hired these type of employees over the last three years, and the credit can be taken for the year of hire plus an additional four years.
Don’t Miss the Details: Contractor-Specific Sales Tax Consideration
There is a recent increase in state tax audits where the Mississippi Department of Revenue (MSDOR) is examining all types of taxes – sales, use, income, and franchise. The MSDOR’s scrutiny has led to assessments for a few clients because of an overlooked area related to contractors’ sales tax.
Many contractors take advantage of the rule that component materials can be purchased free from sales tax when using a Material Purchase Certificate (MPC) number. The MSDOR has been examining items purchased using this exemption and is challenging the tax-free purchase of items that they don’t consider “component materials.” Component materials are defined as all materials that become an integral part of the structure being erected. For personal property to be considered real property, it must be permanently attached to real property—which requires meeting one or more of the below criteria.
- The property or equipment must be attached to building walls, floors, and/or ceiling in a way requiring design or structural alterations to the real property to which it is being attached.
- The property could not be removed intact, or its removal would result in the alteration or destruction of the structure or property.
- The property must become an independent structure itself (i.e., real property).
Component materials may include built-in (but not freestanding) furniture, fixtures, appliances, and similar personal property.
The purchase or sales price of non-component materials is taxed at the regular retail rate and may be excluded from the measure of the contractor’s tax. The MSDOR auditors have been reviewing the detail of items purchased under this exemption and have assessed tax on items they consider to be personal property or supplies. Be sure you know the rules and the items that qualify for this exemption.
There is an exemption that many contractors are not aware of: that freestanding personal property sold under a contract with the U.S. Government, the State of Mississippi, or any political subdivision or other exempt agency that has been qualified, can be purchased tax-free. The contractor must apply to the MSDOR for a letter granting the authority to purchase freestanding personal property that is tax-free. This exemption can save you the sales tax on personal property.
CRI is Here to Help You See Clearly
Being “focused” on tax concerns facing your business can heftily impact your finances. Contact CRI to learn more about how these two often unnoticed tax considerations can play a significant role for your Mississippi business.