The Mississippi House of Representatives passed HB 1142 to extend the state’s 3.5% contractor’s tax to residential construction and to require builders to obtain a material purchase certificate (“MPC”) in order to pull a local building permit. Under current law, the contractor’s tax only applies to commercial construction, and the ordinary 7% sales tax applies to certain aspects of residential construction. Confusion and disagreement over that residential tax scheme has led to extensive controversy and litigation especially in the context of roofers, remodelers and others performing home repairs and renovations rather than original construction.

The House bill would also remove certain land costs from the contractor’s tax base, and that would apply both for commercial and residential projects. If enacted, this bill would become effective July 1, 2021.

The Senate passed SB 2874 that would require all residential or commercial contractors to register with the Department of Revenue in order to pull a local building permit, but that bill did not extend the contractor’s tax to residential construction and repairs as with the House bill. The Senate bill would be effective immediately upon passage.