Mississippi Moves Forward with Remote Software Sales Tax Legislation


The Mississippi House of Representatives yesterday amended S.B. 2449 to adopt comprehensive provisions regarding the sales and use taxation of remote software and related services. 

This amendment codifies the Department of Revenue’s existing regulation that “computer software maintained on a server located outside the state and accessible for use only via the Internet is not a taxable retail sale.”  In essence, it would confirm that Mississippi only taxes software that is physically downloaded or delivered into the state, and excludes remote cloud-based applications.  It takes a similar approach in taxing only those computer software services actually performed within the state, so computer support activities performed remotely would not fall within the scope of the tax.

The bill is expected to go back to the Senate for concurrence and, if approved, could go to the Governor for signature shortly thereafter.

A Long and Winding Path . . . 

This legislation is the culmination of well over a year of debate and study of the remote software taxation issue.  Readers may recall prior coverage of the Department’s attempt to capture remote software such as SaaS in late 2021 via a proposed sales tax regulatory amendment.  That effort would have deleted from the Department’s current regulations the longstanding provision acknowledging that the tax does not apply to “software maintained on a server located outside the state and accessible for use only via the Internet.”  The Mississippi business community vocally opposed this proposal, viewing that attempted amendment as a broad and illegal sales tax increase without legislative approval.  Following that backlash, the Department withdrew the proposed regulation but continued to instruct vendors to collect sales tax on these products and services – arguably in direct contravention of existing law.

H.B. 968, a companion bill originally introduced in the House, would have implemented a legislative study committee’s recent recommendation to adopt a broad exclusion for all software and related services used as business inputs.  That study committee, established by the 2022 Legislature, conducted multiple public hearings throughout last year and issued its comprehensive final report to the Legislature on October 1.  The study committee’s recommendations to exclude these business inputs from sales and use tax reflected the significant compliance complexity associated with constantly changing technology, long-term economic development considerations, and a desire to thwart the rapid expansion of the state’s sales and use tax into ordinary business overhead and administrative expenses.

Following the introduction of the original House bill, a substitute version was adopted in committee that explicitly would have expanded the sales tax to encompass these remotely accessed goods and services, basically adopting the Department’s original position.  This amendment caused widespread alarm throughout the business community because it would have represented a significant tax increase on their operations, created a material disincentive to locate, expand or even continue to maintain technology-intensive business activities in the state, and was a major departure from historic Mississippi tax policy related to remotely accessed computer software products and services.

Following extensive negotiations with Senate and House leadership, leading business groups such as BIPEC, the Mississippi Manufacturers Association, the Mississippi Economic Council, the Mississippi Bankers Association, the Mississippi Realtors Association, and the Department were able to draft and agree on a new “compromise” version that would preserve the state’s historic approach to taxing these items based on physical location while also addressing a number of important ancillary and compliance issues.  That compromise proposal is now reflected in the amended S.B. 2449 which now appears to be the vehicle for moving the legislation forward.

Summary of Bill Contents

The bill contains many important changes and features, including the following:


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National Law Review, Volume XIII, Number 68