JACKSON – A proposed tax reform in Mississippi promises to cut grocery taxes and raise gas costs to support infrastructure improvements, marking a major shift in the state’s approach to taxation and funding. 

House Bill 1, approved by the House on Jan. 16, aims to reshape Mississippi’s tax structure by reducing grocery taxes, introducing a 5% gas tax for infrastructure, cutting income taxes over time and adding an option for a 1.5% local sales tax. The plan represents one of the state’s most ambitious tax overhauls in recent years.

What House Bill 1 would change 

House Bill 1 proposes a $2.2 billion reduction in state tax revenue, primarily by easing income tax requirements for Mississippians and granting local governments more control over funding. The bill allows city and county leaders to implement a 1.5% local sales tax. In areas that choose to opt-in, the total sales tax would increase from 7% to 8.5%, meaning consumers would pay $8.50 for every $100 spent.

Currently, municipalities receive 18.5% of the state’s 7% sales tax revenue. However, House Bill 1 would end this remittance and replace it with revenue generated from the new 1.5% local tax. Proponents argue this shift could increase municipal funding by 15%.

The legislation also addresses grocery taxes, aiming to reduce them incrementally from 7% to 2.5% by 2036. Starting in 2026, the tax would drop to 4.5%, with subsequent annual reductions of 0.2%. For areas that implement the 1.5% local sales tax, taxes on groceries would be 4% by 2036. 

Grocery tax impact 

A 2023 HelpAdvisor study found Mississippi shoppers spend an average of $290 a week on groceries, the third highest in the nation, trailing only California at $298 and Nevada at $295. Under House Bill 1, the proposed grocery tax reduction could save Mississippians about $8.70 weekly at checkout. 

Food costs in Mississippi are part of a broader trend of rising prices nationwide. The Consumer Price Index shows food prices increased by 25% between 2019 and 2023, outpacing other major categories like housing and medical care. The sharpest increases occurred in 2022, driven by disruptions such as the avian influenza outbreak, the conflict in Ukraine, and lingering supply chain issues from the COVID-19 pandemic. While food price growth slowed in 2023, costs remain elevated compared to pre-pandemic levels. 

Hattiesburg resident Ed Myers is skeptical about the impact of the proposed tax reduction. 

“It isn’t really going to make much of a difference,” Myers said. “Because the price [of groceries] is going to go up.” 

Some lawmakers, however, argue the reduction could offer meaningful relief. Sen. Dennis DeBar, a Republican from Leakesville, noted lower grocery taxes would provide immediate benefits for families struggling with inflation and rising property taxes. 

“Groceries have increased in price exponentially since COVID,” DeBar said. “So, if we could put more money out in our citizens’ pockets immediately, rather than once a year during tax filing, I think that’s going to help generate growth. It’s going to help people on fixed incomes, our seniors and so forth, who don’t have a liquid income.” 

Gas tax impact 

House Bill 1 also introduces a 5% tax on gasoline, adding to Mississippi’s existing 18.4 cents per gallon flat tax. The increase would generate funding for the Mississippi Department of Transportation, which relies heavily on state appropriations for road and bridge projects. 

With the state’s current average gas price at $2.62 per gallon, the proposed tax would add about 13 cents per gallon at the pump. 

State leaders have long debated implementing an indexed tax—one based on a percentage rather than a fixed rate—to ensure sustainable funding for road maintenance. Rep. Larry Byrd, a Republican from Hattiesburg, said the measure would help MDOT plan long-term infrastructure projects. 

“It fixes several things going forward that would struggle every year —funding MDOT,” Byrd said. “It’s just been a problem getting a sustaining source of revenue for MDOT, so they can plan big projects and know that they’re going to be able to pay for them and draw down federal dollars.” 

While the gas tax would focus on state roads, the local sales tax option would support county road maintenance through Mississippi’s State Aid Road Fund. The money would first cover expenses for the Office of State Aid Road Construction, with the remainder distributed to counties based on population and road miles. Additional dollars would go toward structurally deficient bridges. 

“On the county level, there’s still a big need – always a need for road and bridge projects,” said Republican Representative Shane Barnett, who serves for House District 86. “The fuel tax should generate about $400 million a year in MDOT money. That would go straight to maintenance and capacity.” 

Lawmakers’ perspective 

Proposed tax cuts and new revenue measures, outlined in House Bill 1, would collectively reduce the state’s $7 billion general fund by approximately $1.1 billion. 

While local governments could opt out of the proposed 1.5% local sales tax, proponents argue municipalities choosing to implement it would see revenue gains, offsetting the loss of the current 18.5% diversion from state sales taxes. 

“That’s a 15% increase to every city in the state. It is real money,” said Rep. Trey Lamar, a Republican from Senatobia and the bill’s sponsor. “It can go back into property tax savings if that’s what the local government chooses to do. It can go back into roads or additional policemen, law enforcement, fire protection – those basic needs that people need on that local government level – that’s what that money can be used for.” 

Hattiesburg Mayor Toby Barker, legislative co-chair for the Mississippi Municipal League, emphasized the importance of ensuring municipalities are not financially disadvantaged by the changes. 

“Our position has been if you’re going to change anything dealing with the sales tax, then make sure cities come out at least even, or above. House Bill 1 does that, so we’re glad to see that,” Barker said. “We’re waiting to see what the Senate proposal comes up with, but we’ve made that position clear to the Senate leaders as well.” 

If enacted, House Bill 1 would mark a historic shift in Mississippi’s tax structure. However, it contrasts with more conservative proposals from the Senate, which has previously resisted plans to fully abolish the state income tax, according to Mississippi Today.  

Republican Lt. Gov. Delbert Hosemann has suggested a more gradual approach to cutting state revenue, including an immediate reduction of the grocery tax to 5% and a phased reduction of the 4% income tax to 3% over four years.

Sen. Brice Wiggins, a Republican from Pascagoula, framed changes to the state grocery tax as a question of “how much”, not when.  

“One, it certainly will provide relief to not only working families but all families in general,” Wiggins said. “Also, groceries are staples that you have to live by. Considering the inflation that we’ve had, considering the economic times that we’ve had, it’s the right thing to do. From my understanding, we’re one  of only two or three states that have it as high as we do.” 

Republican Sen. Scott DeLano of Harrison County stressed any proposal to cut grocery taxes would ensure municipalities retain current funding levels.  

“It’s just a mathematical problem that we would have to solve in the legislation,” DeLano said. “No one is intending on the municipalities receiving any less funds from sales tax on groceries than what they receive today.”.  

Despite differences in scope, many Senate lawmakers expect reforms addressing both grocery and income taxes to gain Senate approval. 

Feb. 4 is the deadline for committees to report bills for the 2025 legislative session.