A Guide to the Mississippi Contractor’s Tax
Understand your obligations under Mississippi's 3.5% contractor's tax, from defining the taxable contract price to ensuring complete compliance.
The Mississippi Contractor’s Tax is a levy on the gross income from contracting activities within the state, distinct from the general sales tax. It applies specifically to contractors working on real property and is calculated at a rate of 3.5% on the total contract price or compensation received. The liability for this tax rests with the contractor performing the work, not the property owner.
Determining Tax Liability
A contractor is broadly defined to include any person who contracts to perform construction, repair, or modification of real property. For prime contractors, the tax applies to non-residential, commercial projects where the total contract price exceeds $10,000. For subcontractors, the tax may apply if their portion of the work is over $10,000 and the prime contractor has not paid the tax on the entire project.
If a prime contractor qualifies the contract and pays the 3.5% tax on the gross contract price, subcontractors performing work under that contract do not owe additional contractor’s tax. However, if the prime contractor fails to pay the tax, the liability for the tax on their portion of the work shifts to the subcontractor. The tax applies regardless of who owns the property, meaning contracts with government agencies or nonprofit organizations are still subject to the tax.
Calculating the Tax Due
The calculation of the Mississippi Contractor’s Tax begins with the tax base, which is the total contract price or gross income from a project. The 3.5% tax is levied on this gross amount, which includes all charges for labor, materials, profit, and overhead. Unlike other taxes, there are no deductions from the total contract price for costs incurred by the contractor. This means expenses like payments to subcontractors or fees for architectural services cannot be subtracted from the contract total before calculating the tax.
Required Permits and Documentation
Before beginning work on a qualifying project, a prime contractor must obtain a Material Purchase Certificate (MPC) from the Mississippi Department of Revenue. The primary purpose of the MPC is to allow the prime contractor and their subcontractors to purchase materials and services that will become a component part of the final structure without paying sales tax at the point of purchase. This prevents the double taxation of materials, which are ultimately taxed as part of the gross contract price under the 3.5% contractor’s tax.
To apply for an MPC, the contractor must submit an application for each specific contract through the Department of Revenue’s online portal. The application requires detailed information about the project, including the contractor’s name and address, details about the property owner, and the total contract amount. The MPC is issued for a specific contract and expires upon its completion.
Before an MPC is issued, the contractor may need to prepay the estimated tax or file a surety bond to guarantee payment. For contractors with a physical location in Mississippi, this requirement applies to contracts exceeding $75,000. However, contractors without a physical location in the state must meet this requirement for all contracts exceeding $10,000.
Filing and Paying the Tax
The final step is to file the return and remit payment. The filing frequency for the contractor’s tax is monthly, and the return and payment for a given month are due by the 20th day of the following month.
The primary method for submission is through the Mississippi Department of Revenue’s online portal, the Taxpayer Access Point (TAP). Contractors must register for an account on TAP, which allows them to file returns and make payments electronically. Payments can be made directly from a bank account via ACH debit or by credit card, though card payments may incur a convenience fee.