United States: Mississippi Enacts Legislation Addressing Equifax Decision

In response to a Mississippi Supreme Court decision last year in Equifax, Inc. v. Department of Revenue,1 the state of Mississippi has enacted legislation effective January 1, 2015 clarifying the ability of the Mississippi Department of Revenue and corporate taxpayers to utilize alternative apportionment, and specifically outlining the burden of proof necessary to support an alternative apportionment claim.2 The legislation also requires the Commissioner to set forth regulations on when it can require a corporate taxpayer to file a combined report with its affiliates, and addresses several procedural issues.

The Equifax Case

In Equifax, the taxpayer was a Georgia corporation in the business of consumer credit reporting that employed three Mississippi residents and had approximately 800 Mississippi-based customers, but did not have any property located in the state. Applying the standard method of apportionment for service companies,3 the taxpayer concluded that it had no income subject to tax in Mississippi, arguing that none of its income-producing activity occurred in Mississippi. The Department determined that the standard apportionment method used by the taxpayer did not reflect the extent of its business in the state. Accordingly, the Department used an alternative apportionment method consisting of market-based sourcing,4 and issued an assessment against the taxpayer driven by the significant number of the taxpayer's Mississippi customers.

The Mississippi Supreme Court held that the use of an alternative apportionment method was not a promulgation of a rule in violation of Mississippi law, the trial court applied the proper standard of review, and the Department did not abuse its discretion by imposing penalties. Specifically, the Court agreed with the Mississippi Chancery Court's limited scope of its review to "examine whether the Commission's decision was supported by substantial evidence, was not arbitrary and capricious, was within the Commission's power to make, and did not violate the taxpayer's statutory or constitutional rights." The Court also endorsed the Chancery Court's placing of the burden of proof by the preponderance of the evidence on the taxpayer, rather than the Department, since the taxpayer was petitioning the court for relief.

New Alternative Apportionment Provision

The legislation adopts a statutory provision that allows the Commissioner of the Department to require or the taxpayer to request special apportionment and allocation treatment when the Mississippi statute or Department regulations dealing with allocation and apportionment do not fairly represent the extent of a taxpayer's Mississippi business activity.5 The Department or the taxpayer may request one or more of four separate remedies: (i) separate accounting; (ii) the exclusion of any one or more of the apportionment factors; (iii) the inclusion of one or more additional factors that will fairly represent the taxpayer's business; or (iv) the employment of any other method to equitably allocate and apportion the taxpayer's income.6 The party requesting alternative apportionment bears the burden of proof by a preponderance of the evidence in an administrative or judicial proceeding to show two elements: (i) the statutory or regulatory method does not fairly represent the taxpayer's Mississippi business activity; and (ii) the proposed method more fairly represents the activity than any other reasonable method.7

The statute makes clear that alternative apportionment is intended to be invoked only in "limited and unique, nonrecurring circumstances" where unanticipated results that unfairly represent the taxpayer's Mississippi business activity arise from use of the statute or regulation.8 The Commissioner is not allowed to assess penalties related to a deficiency arising from the imposition of alternative apportionment unless the Commissioner can establish by the preponderance of the evidence that the taxpayer's method did not have a reasonable basis or did not follow existing statutes or regulations.9 Similar provisions are contained within the statutes governing allocation and apportionment for financial institutions.10

Combined Reporting

While Mississippi corporation income tax typically is reported on a separate company basis, the taxpayer has the right to elect combined reporting for members of its affiliated group.11 Further, the Commissioner has the right to require combined reporting if the intercompany transactions of the taxpayer and its affiliates have resulted in the shifting of taxable income between members of the included affiliated group.12 The legislation clarifies that the Commissioner's burden of proof on this issue must be carried by a preponderance of the evidence.13 In addition, the legislation prohibits the Commissioner from requiring combination until regulations that specify the criteria and circumstances forming the basis for meeting the above preponderance of the evidence burden have been enacted.14 Likewise, the Commissioner cannot assess penalties related to a deficiency resulting from the conclusion that a combined return must be filed unless the Commissioner establishes by the preponderance of the evidence that the taxpayer's filing method had no reasonable basis or the intercompany transactions lacked any material nontax business purpose.15

Reduction of Interest on Tax Underpayments

Beginning for taxes assessed by the Department on or after January 1, 2015, the legislation gradually reduces the applicable interest rate on underpayments of tax from 1 percent per month to 0.5 percent per month, in 0.1 percent increments over the next five years.16 The Mississippi sales tax generally requires taxpayers to add the amount of the sales tax to the sales price or gross income from the transaction and collect such amount from the customer or purchaser at the time of the transaction.17 These amounts are considered "trust fund monies" since they are collected for the benefit of the state. The legislation adds a presumption that the taxpayer actually collected the tax from the customer or purchaser.18 In addition, the legislation states that penalties for failure to remit the trust fund amounts cannot be imposed by the Commissioner based on the presumption that the taxpayer collected sales tax from the purchaser.19 Rather, the Commissioner must prove by a preponderance of the evidence that the taxpayer actually collected these trust fund monies from the purchaser and intentionally failed to remit the funds to the state.20

Revisions of Appellate Procedure

Following an assessment by the Department or the denial of a refund claim, a taxpayer may appeal the action of the Department to the Mississippi Board of Review, and the taxpayer may appeal an adverse decision of the Board of Review to the Mississippi Board of Tax Appeals.21 The legislation specifically allows a taxpayer to appeal from the Department's denial of a claim to tax credits or incentives.22 In addition, the legislation recognizes the concept of a deemed denial, where an administrative authority does not decide a matter for a lengthy period of time. The legislation allows a taxpayer to appeal from the Board of Review to the Board of Tax Appeals if no decision is rendered by the Board of Review six months following a hearing.23 Likewise, a taxpayer may automatically appeal from the Board of Tax Appeals to the Chancery Court if no decision is rendered by the Board of Tax Appeals nine months following a hearing.24

The legislation makes several changes to the specific procedure to be followed at the Board of Tax Appeals level. The Board of Tax Appeals is required to conduct a hearing on all factual and legal issues raised by the taxpayer addressing the substantive or procedural propriety of the Department's actions being appealed.25 The Board of Tax Appeals is not allowed to give any deference to the Board of Review's decision, but may give deference to the Department's regulations and publications, and must decide all factual and legal questions presented.26 Finally, if the matter is appealed to the Chancery Court, the Chancery Court must hold a full evidentiary judicial hearing on all factual and legal issues raised by the taxpayer addressing the substantive or procedural propriety of the Department's action being appealed.27


This legislation provides taxpayers with welcome relief from the Equifax decision that received considerable attention and criticism as being adverse to Mississippi's business climate. As discussed above, in defining the appropriate standard of review to be applied by the Chancery Court to the challenged Department positions, Equifax clearly required courts to give deference to the Department, regardless of the technicalities involved in the case.

The statutory amendments address Equifax by clearly specifying the four remedies available to taxpayers or the Department in situations where the standard apportionment provisions do not fairly represent the taxpayer's business activity in Mississippi. The party requesting alternative apportionment bears the burden of proof by a preponderance of the evidence. Previously, a regulation provided the four possible remedies, but did not address the burden of proof.28 The legislation benefits taxpayers by replacing the Equifax burden of proof standard that favored the state with a new standard that places the burden on the moving party and clarifying that an alternative apportionment method should only be used in "limited and unique, nonrecurring circumstances." Thus, the Department may not routinely reject the standard statutory apportionment methodology and arbitrarily invoke alternative apportionment in situations where an alternative method would increase the sales assigned to the state. The legislation also benefits taxpayers by prohibiting the Commissioner from assessing penalties related to alternative apportionment unless he or she can show by the preponderance of the evidence that the taxpayer's method did not have a reasonable basis or did not follow existing statutes or regulations.

The issue of alternative apportionment has grown in importance in states beyond Mississippi. Many states have adopted the equitable apportionment provision from the Multistate Tax Compact, but this standard provision does not address the burden of proof.29 Also, there appears to be a trend in states that have a statutory cost of performance standard to apply market-based sourcing principles.30 This legislation may encourage other states that use a cost of performance methodology to enact legislation to dissuade revenue departments from routinely applying a market-based sourcing approach whenever it benefits the state.

In addition to the alternative apportionment statutes, the legislation enacts combined reporting provisions that should be favorable to taxpayers. In order to require combined reporting, the Commissioner must show by a preponderance of the evidence that the intercompany transactions of the taxpayer and its affiliates resulted in an impermissible shifting of income. Prior to requiring combined reporting, the Commissioner must promulgate regulations specifying the elements needed to satisfy the burden of proof. Finally, the Commissioner must meet the preponderance of the evidence standard before assessing penalties related to combined reporting.

Taxpayers also should benefit from the revisions to the appellate procedures. The legislation provides new procedures for appealing an assessment by the Department or the denial of a refund claim. Under the new provisions, taxpayers specifically are allowed to appeal from the denial of a claim to tax credits or incentives. Also, the legislation adopts the concept of a deemed denial and allows taxpayers to file appeals if a decision of the lower body is not issued in a certain period of time. Furthermore, amendments to the procedures followed by the Board of Tax Appeals should be favorable to taxpayers. In another significant procedural change, matters appealed to the Chancery Court are entitled to a full evidentiary judicial hearing.

The Mississippi legislation clearly addresses and solves the most bothersome issues in Equifax. Combined with the legislative reduction of the interest rate on tax underpayments, these statutory amendments should make Mississippi more attractive to out-of-state businesses.


1 125 So. 3d 36 (Miss. 2013), petition for cert. filed, Feb. 19, 2014. For a further discussion of this case, see GT SALT Alert: Mississippi Supreme Court Upholds Use of Alternative Apportionment Method.

2 H.B. 799, Laws 2014, enacted April 10, 2014.

3 For sales other than sales of tangible personal property, sales are sourced to Mississippi to the extent the income-producing activity is performed within the state (commonly called the proportional cost of performance method). CODE MISS. R. 35-III-8.06:402.09.

4 The taxpayer's income from services provided to customers located in Mississippi was apportioned to Mississippi.

5 MISS. CODE ANN. § 27-7-23(c)(2)(B).

6 MISS. CODE ANN. § 27-7-23(c)(2)(B)(1)-(4).

7 MISS. CODE ANN. § 27-7-23(c)(2)(C).

8 Id.

9 MISS. CODE ANN. § 27-7-23(c)(2)(D).

10 MISS. CODE ANN. §§ 27-7-24 et seq.

11 MISS. CODE ANN. § 27-7-37(1), (2)(a)(i).

12 MISS. CODE ANN. § 27-7-37(2)(a)(ii).

13 Id.

14 MISS. CODE ANN. § 27-7-37(2)(a)(iii).

15 MISS. CODE ANN. § 27-7-37(2)(a)(iv).

16 MISS. CODE ANN. §§ 27-7-51(6); 27-7-53(3)(b); 27-7-315(2); 27-7-327; 27-7-345(a)(ii); 27-13-23(3)(b); 27-13-25(2); 27-65-39.

17 MISS. CODE ANN. § 27-65-31.

18 Id.

19 Id.

20 Id.

21 MISS. CODE ANN. § 27-77-5(1), (4).

22 See generally MISS. CODE ANN. § 27-77-5.

23 MISS. CODE ANN. § 27-77-5(4).

24 MISS. CODE ANN. § 27-77-5(6)(e).

25 MISS. CODE ANN. § 27-77-5(6)(a).

26 MISS. CODE ANN. § 27-77-5(6)(b).

27 MISS. CODE ANN. § 27-77-5(6)(c).

28 CODE MISS. R. 35-III-8.06:402.10.

29 Specifically, the Compact provides for: (i) separate accounting; (ii) the exclusion of one or more of the factors; (iii) the inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in the state; or (iv) the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income. Multistate Tax Compact Art. IV.18. Note that the Multistate Tax Commission is considering possible revisions to this item.

30 These states include Florida (see Technical Assistance Advisement No. 13C1-011, Florida Dept. Of Revenue, Nov. 21, 2013; Technical Assistance Advisement No. 13C1-004, Florida Dept. of Revenue, May 21, 2013) and Tennessee (see BellSouth Advertising & Publishing Corp. v. Chumley, 308 S.W.3d 350 (Tenn. Ct. App. 2009), leave to appeal denied, Tenn. Supreme Court, March 1, 2010; Vodafone Americas Holdings, Inc. v. Roberts, Tennessee Chancery Court, 20th Judicial District, Davidson County, No. 07-1860-IV, March 19, 2013).

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