United States

Mississippi: Court Strikes Down Dividend Exclusion Statute

Mar 30, 2015
From KPMG TaxWatch

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Recently, a Mississippi chancery court addressed whether a statute allowing an exclusion only for certain dividends was unconstitutional. Under Mississippi law for the tax years at issue, dividends received from domestic affiliates that did business and filed Mississippi income tax returns were excluded from gross income. Conversely, dividends received from affiliates that did not do business in Mississippi were included in the Mississippi corporate tax base.  The taxpayer protested that this disparate treatment was unconstitutional. After the Mississippi Tax Commission Board of Review upheld the assessment, the taxpayer appealed to the Hinds County Chancery court.

The court noted that on its face the dividend exclusion statute denied a taxpayer a deduction if its affiliates decided not to locate any operations in Mississippi.  As such, the statute clearly favored domestic corporations over foreign corporations and, in the court’s view, discouraged corporations from choosing to locate operations outside of Mississippi. The court concluded that the statute was “discriminatory in nature and on its face.”  Furthermore, the Department had presented no evidence that the statute was a “compensatory tax” designed to make interstate commerce bear a burden already borne by intrastate commerce. Finally, the court addressed the proper remedy, noting that the Department had suggested that the statute be rescinded altogether and the tax benefits disallowed to all taxpayers. This suggestion, the court concluded, was not permissible or practicable, as the statute of limitations for the tax years at issue (1997-1999) had expired for most taxpayers and retroactive assessments, if possible, would also raise constitutional issues.  As such, the court concluded that the appropriate remedy was to put the taxpayer on even footing with those taxpayers that enjoyed the benefits by striking the offensive limitations.  Please contact Scott Salmon at 202-533-4202 with questions on AT&T Corporation v. Mississippi Department of Revenue.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.