Mississippi’s new direct pay permit for purchases of computer software and computer software services is now available on the Department of Revenue’s website. The Mississippi Legislature authorized this new permit earlier this year as part of the state’s comprehensive legislation on the taxation of remote software and services (see prior coverage here), which went into effect July 1.
This new and unique permit allows software consumers to remove vendors from the sales and use tax collection process and instead handle those accruals and remittances internally. This will be very important when unbundling payments covering both taxable and nontaxable items, and also when attributing taxable payments to multiple user locations within and without the state. That direct remittance process also should help streamline the recovery of any mistaken tax overpayments since the consumer – rather than the vendor – would be the direct “taxpayer” when using the permit.
Taxpayers already possessing a direct pay permit (e.g., manufacturers, economic development programs, etc.) should not need this additional software permit as they should be able to use their existing permit for these types of transactions.
To obtain the new software permit, taxpayers will need to access their online TAP account (https://tap.dor.ms.gov/_/) and will need to have an active use tax registration. The application link may not be visible on the Department’s website until those credentials and the use tax account have been established.
Taxpayers should be able to access and submit an online permit application by following these steps (note that the Department indicated it may modify the system to simplify this process as it finalizes the guidance noted below):
- Once logged into their online use tax account via the TAP page, taxpayers should see a link to apply for direct pay permits.
- Select an appropriate start date, but that should not be prior to July 1, 2023, the effective date of the new legislation.
- There should be seven (7) categories of qualified industries to select from; choose the economic incentives option.
- Several “reasons” should appear once that option is selected; select the last category which should be for a “computer software exemption.”
- The instructions from that point forward should be self-explanatory.
The Department has stated informally that a purchaser should be able to provide this permit to any vendor who is in the business of selling, licensing, or providing computer software or computer software services (as defined in the new law), thereby relieving those vendors from their collection responsibilities. This permit should not be provided to or accepted by vendors of computer equipment who are not also in the business of providing computer software or computer software services.
It will be very important to fully understand the definitions and examples of taxable and nontaxable items and services contained in the new legislation. One example provided of a qualifying use is for a vendor that provides both software and hardware items. That vendor should be allowed to accept the permit for all transactions with that customer, even if a particular transaction did not encompass software or computer software services. On the other hand, a vendor that sells only computer hardware and is not in the business of providing computer software or computer software services should not accept the permit for any transactions.
The Department has indicated that it is finalizing and plans to publish on its website additional guidance and instructions for obtaining and using this permit. Jones Walker will forward any additional guidance on this topic as it becomes available.
In the meantime, any taxpayers having questions can contact the Department’s general sales tax help line at (601) 923-7015 or attorneys at Jones Walker for additional clarification.