LAW ELEVATED — Recent Tax Changes To Encourage Development & New Investment

Recent enactments of both the U.S. Congress and Mississippi Legislature have modified tax laws to encourage development and new investment.

Reducing Fee-in-Lieu to $60 Million Enhances Economic Development Recruitment Tools, Mississippi has traditionally offered incentives for economic development, recognizing that new and expanding industries bring jobs and increased tax revenues, but that Mississippi must compete for them with many other states.

Our Legislature created property tax exemptions as early as 1882. With the Balance Agriculture with Industry (BAWI) program in the 1936, Mississippi became a national leader in using public bond financing to construct facilities to recruit industry. BAWI was used to recruit Ingalls Shipbuilding, One of the state's most significant industries. Over the years, incentive programs have been expanded and modernized to give the Mississippi Development Authority, counties, cities and economic developers the tools they need to compete. One such addition was the creation in 1989 of a fee-in-lieu property tax abatement, Miss. Code Ann. Section 27-31-104.

The fee-in-lieu abatement was initially limited to projects over $100 million - a truly major project back in 1989 - but provided important benefits. It allowed counties and cities to offer a more generous tax incentive as needed to compete, abating up to two-thirds of annual property taxes for 10 years. Recognizing that the remaining new tax revenue from a project that large would still provide a significant local revenue increase, the fee-in-lieu allowed counties, cities (if within city limits) and schools to share proportionately. It also provided greater flexibility in structuring the incentive and greater local discretion in spending the revenue. Some counties have used this new revenue to fund special projects, some to reduce tax rates or avoid an increase, some to strengthen a tight budget and some to acquire land and fund infrastructure needed to recruit new industry. Over the years, the fee-in-lieu statute has been amended to make it even more useful. For example, amendments have confirmed that developers can make a legally binding fee-in-lieu commitment to secure a site selection decision, an advantage not available with some other incentives which require governmental approval after project construction. Also, while the Mississippi Constitution limits a tax incentive on any particular item of property to 10 years, over time the permitted term of...