An ad valorem tax (Latin for “according to value”) is a tax whose amount is based on the value of a transaction or of property. Perhaps the most common form of such a tax is the annual real estate tax collected by the county.
Business owners know, however, that an ad valorem tax is also assessed against the personal property of the business, including inventory and equipment.
To assist counties and municipalities in their effort to entice businesses to move to a particular county or city, the Mississippi Legislature has given them the ability to grant exemptions to certain ad valorem taxes.
Mississippi law creates a number of such exemptions. Today, we will look at the exemption applicable to the establishment or expansion of a business.
The beginning point is Section 27-31-101 of the Mississippi Code. It is there that counties and cities are authorized, in their discretion, to grant exemptions from certain ad valorem taxes.
There are two important take-aways from this statute. First, the decision as to whether to grant an exemption is discretionary with the county or city. They are not required to grant any exemptions.
Second, because the decision is discretionary, the conditions upon which an exemption can be obtained will vary from county to county or city to city.
How long can the exemption run?
The statute limits the exemption to a total of 10 years. If the county or city grants an exemption for less than 10 years, however, it has the right to extend the exemption, but only for a total of 10 years.
What new enterprises may apply for the exemption?
Section 27-31-101 lists the following new enterprises that may be granted an ad valorem tax exemption:
(a) Warehouse and/or distribution centers;
(b) Manufacturing, processors and refineries;
(c) Research facilities;
(d) Corporate regional and national headquarters meeting minimum criteria established by the Mississippi Development Authority;
(e) Movie industry studios meeting minimum criteria established by the Mississippi Development Authority;
(f) Air transportation and maintenance facilities meeting minimum criteria established by the Mississippi Development Authority;
(g) Recreational facilities that impact tourism meeting minimum criteria established by the Mississippi Development Authority;
(h) Data/information processing enterprises meeting minimum criteria established by the Mississippi Development Authority;
(i) Technology intensive enterprises or facilities meeting criteria established by the Mississippi Development Authority;
(j) Health care industry facilities as defined in Section 57-117-3; and
(k) Telecommunications enterprises meeting minimum criteria established by the Mississippi Development Authority.
Expansion of existing enterprises and replacement of equipment
Section 27-31-105 of the Mississippi Code also allows businesses that expand current facilities and/or replace equipment to apply for an exemption.
An example of one county’s approach
As noted above, because the ad valorem tax exemption is discretionary, it is understandable that the criteria and process for obtaining the exemption will not be the same from county to county or city to city.
As a result, let us look at one example – – the Madison County, Mississippi, Ad Valorem Tax Exemption Policy. The Policy is lengthy, but here are some of the high points:
- The Policy divides Madison County into three zones, and the criteria that an applicant must meet varies depending upon the Zone in which the business is located.
- With respect to each Zone, there are different criteria depending upon whether the applicant is a new business or is expanding an existing one.
- In deciding whether to grant an exemption, the County is interested in determining how many jobs will be created, how much of a capital investment will be made, wages to be paid on the new jobs, and a number of other factors. Overall, the Policy attempts to determine the economic impact of the new or expanding business and whether it is sufficient to justify a tax exemption.
The timeline for seeking the exemption is as follows:
- On or before March 1, 2018, the business must file an application with the Madison County Chancery Court. There is no specific form to use, but the application must provide the necessary information (as set forth in the Policy) so that the application can be properly evaluated. The application will also include a proposed Position Statement for the Tax Assessor to review and approve.
- On or before March 15, 2018, the Chancery Clerk will (1) review the application to determine that both the enterprise and the application meet the requirements for obtaining an exemption, (2) compute the amount and level of exemption to which the enterprise would be entitled, and (3) present the application, together with the Chancery Clerk’s findings, to the Executive Director of the Madison County Economic Development Authority.
- Thereafter, the Executive Director is to immediately (1) forward the application and the proposed Position Statement to the Tax Assessor for review and (2) conduct an independent review of the application.
- On or before May 15, 2018, the Tax Assessor must present the completed Position Statement to the Board of MCEDA.
- On or before June 15, 2018, the Board of MCEDA must recommend either approval or rejection of the application (and may offer modifications) and forward its determination to the Chancery Clerk who, in turn, will present it to the Madison County Board of Supervisors.
- If the Board of Supervisors approves the application, the Chancery Clerk will forward the application and related materials to the Mississippi State Tax Commission and to the Tax Assessor
- Upon approval by the Tax Commission, the Chancery Clerk will present that to the Board of Supervisors for final approval.
The procedure is detailed, but it can result in a significant tax savings.
Panter Law Firm, PLLC, 7736 Old Canton Road, Suite B, Madison, MS 39110.