Every year, businesses and individual taxpayers dread tax time. Gathering records, submitting your tax return on time, and paying your tax liability can be stressful, time-consuming, and frustrating. 

Another part of tax compliance is paying sales tax. In most U.S. states, sales tax is part of daily life. This tax is added to the sale of goods and certain kinds of services. The use tax is similar, but it applies to products that qualify for sales tax but were purchased without it out of state. 

Mississippi implements sales tax, so any entity operating in the state needs to collect it from customers and file a tax return. But how does sales tax work? And how is use tax different? This guide covers the ins and outs of sales tax in Mississippi and how to comply with tax law.

What Is Sales Tax?

Sales tax is put on the sale, transfer, or exchange of a good or service. This tax is typically added to the sale price that the consumer pays. You see sales tax when shopping for groceries, ordering food at a restaurant, and buying products at a store. You also pay sales tax on certain services that qualify for sales tax, like paying admission to an event or home maintenance services.

Most states implement sales tax—45 states, plus the District of Columbia, have a state sales tax, and 38 states collect local sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have state sales taxes.

Because sales tax is determined by individual states and not on a federal level, rates vary across the country. Below, we discuss the sales tax rate for Mississippi businesses.

What Is Use Tax?

Any state that requires sales tax also has something called a use tax. A use tax applies to goods that have been purchased for consumption, use, or storage in Mississippi but sales tax wasn’t yet paid. The use tax must be paid to the state government where the goods are actually used.

The purpose of the use tax is to protect Mississippi businesses from unfair competition with sellers in other states. For example, if someone in Mississippi wanted to purchase a vehicle and use it there, but wanted to buy one from a seller in Oregon to avoid sales tax, they would still have to pay the use tax on it in Mississippi. Otherwise, Mississippi businesses would likely lose customers to those other states.

The purchaser is usually responsible for paying the use tax on goods or services purchased elsewhere but used, stored, or consumed in Mississippi. 

Additionally, businesses also have to pay use tax in other situations. Say, for example, that a retail business buys office supplies from a wholesaler to sell to their customers. Traditionally, the business doesn’t pay sales tax to the wholesaler, but it assesses sales tax when it sells those items to customers. However, if the business decides to keep some of the office supplies and use them internally, it should pay use tax on those items to the state. 

Sales Tax Rates in Mississippi

The Mississippi tax sales rate is 7%. This rate applies to either gross sale proceeds or gross income from a sale, depending on your type of business. The use rate is typically the same as the sales tax rate. For example, if you sell a taxable item for $100, you must collect $7 in sales tax from your customer, and then, you must report and pay that tax to the MS DOR. 

The state also allows local governments to add up to 1% in sales tax. By extension, the highest sales tax rate you can face in this state is 8%, but the average is just 7.1%. 

Mississippi is fairly mid-range compared to other states. Again some states don’t have sales tax, but relatively low rates for states with sales tax are down around 4%. Colorado’s sales tax is 2.9% which looks low, but that state has a lot of local sales tax bringing the effective rate much higher for most consumers. 

Understanding these rates helps you implement them when making sales and remitting the correct amount to the Mississippi Department of Revenue as required.

Who Needs to Collect Sales Tax?

Now, do you actually need to collect this kind of tax? According to tax law, any individual or business in Mississippi that sells tangible personal property is required to collect sales tax. They also must have a permit or registration license in the state. If your business has multiple locations, you need a separate tax permit for each location where you sell. 

Fortunately, you don’t have to worry about renewing these permits, as they don’t expire as long as the business stays at the applicable location. Businesses that collect sales tax must submit tax returns for each reporting period.

Mississippi has some sales tax exemptions. Product exemptions include resale, agriculture, government, industrial, taxes, utilities, and some nonprofits. Entity exemptions include government entities, including local, state, and federal agencies.

Sales Tax Return Due Dates

Mississippi taxpayers must file their sales tax returns electronically, or if they cannot do so, they can file them through the mail. These returns must be submitted by the 20th day of the month following the end of the reporting period. If this date falls on a holiday or weekend, returns need to be filed online or postmarked by the next working day. This due date applies whether you file monthly or quarterly.

Note that you always need to file a sales tax return for each period, even if you had zero sales for one period. You would just enter a zero on the line for tax due. These deadlines must be followed consistently and carefully. You want to avoid any late fees or penalties for noncompliance, so stay on top of the reporting calendar.

Penalties for Noncompliance and How to Avoid Them

Failure to comply with all tax requirements in Mississippi could lead to problems and extra expenses that are preventable. Not only will you face fines and penalties, but you may eventually have to deal with legal consequences, too. 

The Mississippi Department of Revenue states that if you have a deficient or delinquent tax because of negligence or failure to comply with tax laws, you may be charged a 10% penalty on the deficiency amount or tax delinquency or 0.5% interest per month from when the tax was due until it’s paid, or both of these penalties could apply. For example, if you owe $5,000 in sales tax and don’t pay, the 10% penalty will be $500, and you may also incur interest at a rate of $25 per month.

You also may be penalized for filing your sales tax return late. Unfortunately, you cannot get an extension on filing unless there is reasonable cause, like a natural disaster that impacts your ability to file on time. Otherwise, your return is still due, and interest may build on the amount you owe until you pay it.

How a Sales Tax Audit Works

In general, a tax audit may occur when the IRS or a state tax agency believes you have filed inaccurate information on your tax return, such as overstating your deductions or underreporting your income. An agent may conduct a sales tax audit to figure out if a business collected the right amount of sales tax and paid all tax that’s owed on their tax return.

During a sales tax audit, the auditor may look at the following:

• Business financial statements and records
• Revenue generated from sales
• Collected sales tax records and receipts
• Recordkeeping practices and organization

The tax agent will then compare the sales tax owed with what the business actually paid. 

You may have to deal with a sales tax audit if you’re suspected of having underreported the sales your business made, when your numbers don’t match, or when there’s another issue with your tax return or payment.

Always comply carefully with any documentation requests or notices you receive from a state tax agency. Don’t ignore any communications about your tax obligations. Talk to a tax professional when you’re not sure how to respond, or you’re facing a sales tax audit.

How to File and Pay Sales Tax

Mississippi has a system called Taxpayer Access Point (TAP), where you can manage your tax payments online. This is also where you can register as a new taxpayer in the state and apply for tax accounts and certain types of licenses and permits. Through TAP, taxpayers can also look up their refund status.

The government’s website says that any business operating in Mississippi needs to register with the Department of Revenue to report and pay for taxes owed. Register your business on TAP if you haven’t already to browse tax resources and get set up for a simple sales tax remittance process.

Sales Tax FAQs

You may still have a lot of questions about sales tax. These matters can be hard to sift through when implementing tax best practices. Here are a few frequently asked questions to help you break sales tax laws down further:

What Are the Sales Tax Rules for Online Sales?

Not all online businesses have to pay sales tax, but it depends on where your business is physically located. In Mississippi, you must pay sales tax if your business has a physical presence there, whether you have a store location, offices, or a warehouse. Your online business also must collect MS sales tax if it has nexus in this state. 

What Is the Nexus in Mississippi?

The term “nexus” refers to a business having an established presence in Mississippi. When a business has nexus, it must collect and submit sales and use taxes. The business may be physically located in the state, or they may have employee or agent representation there who serve Mississippi customers or accept product orders in the state.

If a business is located out of state but has over $250,000 in sales in Mississippi for a year, it is deemed to have a substantial economic presence. Thus, it must register with the state government and collect and remit sales tax. Talk to a tax professional if you’re not sure whether you meet these requirements.

What’s the Difference between Sales Tax and Use Tax?

The Mississippi sales tax applies to goods and services sold in the state. Customers are charged a tax on each purchase they make, and the seller collects these taxes and remits them to the government. Sellers are obligated to report sales tax on their tax returns and submit the correct tax amount to the Department of Revenue. 

The use tax is similar but applies to goods used, stored, or consumed in Mississippi but purchased from another location without sales tax. The sales and use tax are usually the same rate, 7%.

Is There a Voluntary Disclosure Program in Mississippi?

Yes, Mississippi’s Department of Revenue has a voluntary disclosure program. This program is for individuals or businesses that haven’t filed their tax returns. It can be beneficial to take advantage of this program and come forward about unmet tax obligations. The state may agree to waive penalties and limit the statute of limitations, among other benefits.

The Department of Revenue has the right to audit all the information provided and your filed tax returns to ensure there aren’t any discrepancies or violations. When you take advantage of the voluntary disclosure program, you must file all outstanding tax returns, as agreed upon with the agency, within 90 days. You must also pay all the tax owed under the agreement, which could also include late fees or interest. 

It is always important to file on time and comply carefully with any tax audits initiated by the state. The voluntary disclosure program allows you to get on top of any unfiled returns and work with the state to minimize consequences.

Getting on Top of Mississippi Sales Tax

If you run a business in Mississippi that provides tangible goods and services, you’re required to charge sales tax, file a tax return, and pay sales tax owed to the state. Failing to comply with all applicable sales tax requirements can result in penalties, an audit, or even legal trouble.

The good news is that you don’t have to manage all of these requirements on your own. Work with an expert who can walk you through how sales and use taxes work. You may need assistance filing with the state, filing your federal taxes, or just understanding the ever-changing tax laws in Mississippi. It’s always better to be informed and gain support than to risk missing a deadline or a law that applies to your business.

Get started with the right tax team behind you. Contact Damiens Law today to learn more about your business tax obligations or to get help with sales tax issues.