Mississippi Response To Bonus Depreciation

RIA, 9/3/02:

Mississippi Adopts Regulation Decoupling From the Federal Bonus Depreciation Allowance
by Peter G. Pupke, Esq. (RIA)

The Mississippi State Tax Commission has amended a regulation that decouples the state income tax from the federal 30% bonus depreciation allowance under the federal Job Creation and Worker Assistance Act of 2002 (P.L. 107-147). The federal legislation allows businesses to claim 30% bonus depreciation for qualified capital investments for property placed in service after September 10, 2001, which remains in effect for 36 months. ( Miss. Income Tax R. 504 , adopted 8/16/2002.)

State depreciation allowance. Miss. Code Ann. § 27-7-17(1)(f) provides that a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in the trade or business or property held by the taxpayer for the production of income will be allowed as a depreciation deduction. The Mississippi State Tax Commission has stated in a release that the federal bonus depreciation would not be followed by the state, see State and Local Taxes Weekly, Vol. 13, No. 14, 4/1/2002.

Bonus depreciation is not “reasonable.” The amended regulation states that the federal bonus depreciation does not constitute a reasonable allowance for the exhaustion, wear and tear, and obsolescence of the property in regard to which it is taken. Accordingly, the bonus depreciation is not an allowable deduction for depreciation under Miss. Code Ann. § 27-7-17(1)(f) . If the bonus depreciation is used for federal income tax purposes, the tax basis of property will be different for federal and state until such property is fully depreciated.

State adjustments. If bonus depreciation is used for federal income tax reporting, each year an adjustment must be made for reporting depreciation to Mississippi so as to reflect an amount of depreciation that would have been otherwise allowed using federal depreciation guidelines other than that contained in P.L. 107-147. If it is determined bonus depreciation was taken in any year and the proper Mississippi adjustment was not made in that same year, all allowances for depreciation will be denied on all tax returns that are within the statute of limitations until there is a full recovery to Mississippi of excess depreciation deductions. When the Commissioner makes such an adjustment, there will be assessed, in addition to interest, all penalties on any underpayment of income tax to the extent provided by law.

The Commissioner has determined the temporary thirty percent (30%) depreciation bonus provided by the federal "Job Creation and Worker Assistance Act of 2002" is NOT a reasonable allowance for exhaustion, wear and tear and obsolescence of property. Therefore, if such "bonus" depreciation is taken for federal purposes, an adjustment must be made to the Mississippi income tax return to clearly reflect that depreciation which would have otherwise been allowed using other federal depreciation guidelines.

From RIA:

Mississippi Decouples From Federal NOL Carryback and Carryforward Rules

by Robert Rivitz, Esq. (RIA)

Mississippi Governor Ronnie Musgrove has signed into law a bill that establishes Mississippi's own time periods for net operating loss carrybacks and carryovers for corporate and personal income taxes. The rules  are effective for net operating losses for taxable years ending after December 31, 2001. The new law also  identifies the Internal Revenue Code that is effective for prior years' NOL carrybacks and carryovers. (L.  2002, S3114, eff. 1/1/2002.)

Carryback period. Net operating losses for any tax year ending after December 31, 2001 are carried back to each of the two taxable years preceding the loss year. The federal carryback period under Internal Revenue Code Sec. 172 for tax years ending in 2001 and 2002 is five years. Carryover period. If a net operating loss is not exhausted by carrybacks, the net operating loss for any tax year ending after December 31, 2001 is carried over to each of the 20 taxable years following the year of  loss. This is the same as the federal rule.
      
Rules for earlier years clarified. For years ending before January 1, 2002, Mississippi law provides that periods for carrybacks and carryovers are the same as established by the IRC . The new law provides that the IRC referred to for those years is the IRC as in effect at the taxable year end or on December 31, 2000, whichever is earlier.