Mississippi House Bill 970

HORNE LLP is keeping our eye on Mississippi House Bill 970 for our clients doing business in Mississippi.  In its current form, Mississippi House Bill (H.B. 970) addresses three primary areas:

  • "Doing business" definition, also known as nexus standards;
  • Income tax apportionment by formally adopting market based sourcing; and
  • Defining a "valid business purpose" for purposes of restrictions on the deduction of certain intangible expenses and interest incurred in connection with transactions with related members.

H.B. 970 amends Mississippi Code Section 27-7-23 by adopting an economic presence nexus standard for Mississippi.  The definition of "doing business" would amend to include receipts derived from property, activity, or other sources within the State of Mississippi. It would also modify the definition of "doing business" to specifically include the following activities:

  • The regular solicitation of business from potential customers in Mississippi.
  • The issuance of credit, debit, or travel and entertainment cards to customers in Mississippi.
  • The regular performance of services outside Mississippi from which the benefits are received within Mississippi.
  • Entering into franchising or licensing agreements, selling, or otherwise disposing of franchises and licenses by franchisor or licensor to its franchisee or licensee in Mississippi.
  • The regular conduct of transactions with customers in Mississippi involving intangible personal property, including, but not limited to activities such as loans or extensions of credit, resulting in receipts flowing to the nonresident or foreign taxpayer from within Mississippi.

H.B. 970 explicitly states that nexus will be established if the business engages in the regular solicitation of business from potential customers within the state.  It should be noted that under P.L. 86-272, a state is prohibited from imposing a tax on net income if the in-state activity is limited to merely the solicitation of orders for tangible personal property.  

In addition to amending the definition of "doing business," H.B. 970 formally adopts market-based sourcing for services. Under the amendment, income from services shall be apportioned to the state where the benefits of the services are received. This is a movement other states have been adopting.  For example, in 2011, California adopted the market-based sourcing method for sales, which provides that the receipts for sales should be sourced to the location where the benefit is received.  If the end-user of a service is within the state, then the receipts should be sourced to that state.

While many states have moved toward market sourcing, instead of the greater cost of performance standard, the proposed Mississippi change in conjunction with the adoption of the broad economic nexus standards could potentially impact many out of state service providers.  As the standards are currently written, the economic nexus standards are broad and open to interpretation.

The bill also addresses the disallowance of interest expense or costs of intangible expenses between related companies.  It defines that a "valid business purpose" must improve the economic position of the taxpayer apart from the tax effects in order for an expense to be allowed.  It also provides that if the development or other cost related to intangible property were shared by related parties, then they must have been compensated at a fair market, arm's length price for such cost.  If there was not compensation, then the interest expense or intangible expenses and associated costs paid by the company to a related party are not deductible.  Another item to consider is that under the new economic nexus provisions in this bill the company receiving the payment for the interest expense or costs of intangibles would now arguably have nexus.  This appears to be the case regardless of whether the related expense by the payor company is deemed to be not deductible for their tax return. 

We will continue to monitor this and other legislation as the session progresses. 


Contact State and Local Tax Director David Stevens at for more information on this Tax Alert or other legislative developments.