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Mississippi in July 2019: a $50 formation, a $25 report, and a franchise tax that outlives the income code

The Secretary of State's portal turns the Certificate of Formation around in a day, but the maintenance story runs through two tax regimes at once, one of them on a phase-out path the Legislature set in 2016

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 6 sections
  1. The mechanics
  2. The Annual Report and the April 15 deadline
  3. The two-regime tax backdrop, and why 2016 still matters
  4. The Revised Act's working parts
  5. Who Mississippi actually makes sense for
  6. Sources

ississippi LLC formation costs $50 to file the Certificate of Formation and $25 a year to keep the entity on the rolls, which is quiet by the standards of the neighboring Gulf states. The part that is not quiet is the franchise tax, a 4% levy on capital employed in Mississippi that runs in parallel with the state income tax and does not care whether the LLC made any money.

This is a guide for a founder forming in Mississippi in the summer of 2019, written to the Secretary of State's portal as it behaves today and to a tax code that has been in the middle of a multi-year rewrite since the 2016 session.

The mechanics

You file a Certificate of Formation with the Mississippi Secretary of State's Business Services division through the online portal at sos.ms.gov. The governing statute is the Mississippi Revised Limited Liability Company Act, codified at Miss. Code Ann. § 79-29-101 et seq. The Legislature enacted the Revised Act in 2010 and it took effect on January 1, 2011, replacing the 1994 Act that had governed the state's LLCs through the 1990s and 2000s. Every LLC formed in Mississippi since the switch, and by operation of the transition provisions every LLC in existence before it, is now governed by the Revised Act.

The Certificate of Formation is thin. It names the LLC, confirms the existence of a registered agent with a Mississippi street address (which cannot be a post office box), and includes the name and address of the person forming the entity. The online portal walks through the required fields, accepts payment by credit card, and returns a file- stamped PDF by email. Standard turnaround is one business day for electronic filings, longer for paper.

The filing fee is $50, set by the Secretary of State's fee schedule under the Revised Act. There is no tiered expedite menu of the kind Delaware runs; the online route is fast enough that it functions as the state's de facto expedite option, and the counter handles mailed filings when a founder prefers paper for reasons of their own.

You will then need an EIN, which the IRS issues at no cost on Form SS-4 online. You will need an operating agreement, which Mississippi does not file and does not require to be filed but treats as the controlling internal document under the Revised Act's default-rules architecture. You will need to decide, for federal tax purposes, whether to let the default treatment run (disregarded entity for a single-member LLC, partnership for a multi-member) or to file Form 8832 for C-corp treatment or Form 2553 for S-corp treatment. Most Mississippi founders leave the default in place through year one and revisit when there is revenue to recharacterize.

Name availability is checked through the Business Services search on the Secretary of State's site. A separate name reservation is available for a small fee under the Revised Act and holds a proposed name for 180 days, which most filers skip in favor of simply filing the Certificate when they are ready. The skip is fine if the name is distinctive. It is a mistake if the name is generic enough to collide with something already on the rolls, because the portal will reject the Certificate rather than accept it pending a name fight.

The Annual Report and the April 15 deadline

Mississippi requires an Annual Report from every domestic LLC, due each year between January 1 and April 15. The fee is $25 for a domestic LLC, and the filing is handled through the same Business Services portal that handled the Certificate of Formation. The return is short: the Secretary of State prepopulates the LLC's registered office, registered agent, and manager or member-manager block, and the filer confirms or updates the fields. A filer with nothing to change runs through the form in a few minutes and pays at the end.

April 15 is not an accident. Mississippi pinned the LLC annual-report deadline to the federal individual income tax filing date to reduce the number of separate calendar items a small-business owner has to track. For the many Mississippi LLCs whose members file federal returns on the same day, the single-date reminder is a benefit. For Mississippi LLCs whose tax preparer is already running flat-out on the third week of April, the deadline can slide past unnoticed, which is the failure mode the state has to handle every year.

The failure cascade is mild by the standards of some states but real. An LLC that has not filed its Annual Report by April 15 is out of good standing. A Certificate of Good Standing ordered from the Secretary of State's office will reflect the delinquency. After a further waiting period the Secretary can administratively dissolve the entity. Reinstatement requires filing the overdue reports, paying the accumulated fees, and clearing any tax obligations with the Department of Revenue, which is straightforward but not free in time. A dissolved LLC whose members continue to do business through its name during the dissolution window has the same liability-shield conversation with a plaintiff's lawyer that any other administratively dissolved LLC has, and the conversation goes the same way.

Foreign LLCs registered in Mississippi file their own Annual Report on the same April 15 cycle at a higher fee than the domestic $25. A founder operating a non-Mississippi LLC in Mississippi should price the foreign-qualification path against simply forming domestically when the books balance locally; the math rarely favors out-of-state formation for a Mississippi-operated business, which is the point the house analysis in how to choose a state when you don't live there, 2019 makes in more detail for the general case.

The two-regime tax backdrop, and why 2016 still matters

Mississippi taxes an LLC two ways, and the two ways run on different tracks. A pass-through LLC (the default for both single-member and multi-member LLCs) reports its income on the members' Mississippi individual returns. An LLC that has elected C-corp treatment pays at the corporate rate. Both regimes also carry a franchise tax that keys off capital employed in the state rather than income earned, and the franchise tax does not forgive a loss year.

Individual income tax in Mississippi runs in a graduated schedule. For tax year 2019 the brackets are 3% on taxable income above the zero bracket and below the first step, 4% on the next band, and 5% on taxable income above the upper threshold. That schedule is not where the Legislature meant Mississippi to end up. The 2016 session enacted the Mississippi Taxpayer Pay Raise Act, House Bill 1601, which set a phase-out of the 3% bracket running from tax year 2018 through tax year 2022. The first $1,000 of taxable income after the standard deduction and exemptions came out of the 3% bracket in 2018; each subsequent year through 2022 moves another slice into the 0% zone until the bracket is gone and the schedule begins at 4%. A Mississippi LLC member computing 2019 tax is running a transitional bracket schedule that will not look the same in three years.

Corporate income tax follows the same graduated 3%, 4%, 5% architecture and the same 2016 reform path. For a Mississippi LLC that has elected C-corp treatment, the bracket math in 2019 mirrors the individual schedule, with the 3% bracket on its own phase-out track under HB 1601 through 2022. A separate 2016 measure set a glide path toward a flat 4% top rate on both the individual and the corporate schedules by 2022, a direction the Legislature has signaled clearly and funded partially through each successive biennium. A founder sizing a C-corp election in Mississippi in 2019 is pricing against a moving target, but the direction of travel is down.

The franchise tax is the line item that tends to surprise. Mississippi imposes a 4% levy, measured as $2.50 per $1,000, on the value of capital employed in Mississippi, with a statutory minimum. The tax sits alongside the corporate income tax for C-corp-elected LLCs and, more surprisingly to new filers, applies to LLCs treated as partnerships or disregarded entities when they are doing business in the state under the Department of Revenue's long-standing administrative position. The franchise tax is reported and paid annually on the combined corporate income and franchise tax return, Form 83-105, to the Mississippi Department of Revenue. HB 1601 also put the franchise tax on a multi-year phase-down, reducing the rate in steps through 2028 toward an eventual full repeal. The 2019 liability is computed on a reduced rate relative to the pre-reform 4% figure, with further reductions scheduled in each subsequent year. The minimum stays in place during the phase-down.

The practical consequence for a Mississippi LLC member is that the state tax bill has two legs, one that moves with profit and one that moves with balance-sheet capital in the state, and the 2016 reform is slowly lightening both. Neither reform is finished in 2019. A founder forming this summer is forming into a code whose trajectory the Legislature has set but whose endpoints are still several sessions away.

The Revised Act's working parts

The Revised LLC Act is a modern, well-drafted statute that tracks the Uniform Law Commission's 2006 Revised Uniform Limited Liability Company Act in most of its substantive choices while making several Mississippi-specific adjustments. Member-managed is the statutory default under Miss. Code Ann. § 79-29-301. Manager-managed requires an affirmative designation in the Certificate of Formation or the operating agreement. Fiduciary duties are stated in the statute but subject to meaningful modification in the operating agreement, within limits the statute preserves on the duty of good faith and fair dealing.

Charging orders are the exclusive remedy for a judgment creditor of a member under Miss. Code Ann. § 79-29-703, which puts Mississippi in the same broad category as the asset-protection-minded LLC statutes of Wyoming, Nevada, and several other states that have tightened the charging-order exclusivity language over the last decade. The shield is not as aggressive as Wyoming's, and there is no statutory series provision in the Revised Act, but the Mississippi charging-order language is cleaner than the older 1994 Act's was and the exclusivity point has been helpful in local litigation where the question has arisen.

Dissolution mechanics sit in Article 8 of the Revised Act, at § 79-29- 801 and following, and track the uniform approach: dissolution by event specified in the operating agreement, by member vote, by judicial order on grounds the statute enumerates, or administratively by the Secretary of State for failure to file the Annual Report or maintain a registered agent. The administrative-dissolution track is the one most small Mississippi LLCs encounter, and it is reversible on reinstatement, which is the point the annual-report discussion above bears down on.

Who Mississippi actually makes sense for

Mississippi makes sense for founders operating in Mississippi. The $50 formation fee is on the low end of the Southeast, the $25 Annual Report fee is the lowest in the region, and the Revised Act's statutory architecture is modern enough to run a serious operating business without running into the edge cases that the older 1994 statute produced. A Jackson, Gulfport, Hattiesburg, or Oxford operator forming a local LLC has no reason to pay two states' filing fees by forming in Delaware or Wyoming and then foreign-qualifying home.

Mississippi makes sense for a small real-estate holding structure on Mississippi land, where the combination of the Revised Act's charging-order exclusivity and the low formation and maintenance fees produces a working asset-protection vehicle at a lower price than Alabama, Louisiana, or Tennessee. The absence of a statutory series provision means a multi-property portfolio files separate LLCs for each property, which costs more than a single series master would, but the franchise tax treats each LLC's capital on its own books anyway, so the series question is less load-bearing in Mississippi than it is in Texas or Delaware.

Mississippi does not make sense for a software company looking to raise a priced seed round in the next eighteen months. Institutional investors will ask for a Delaware C-corp, and if they don't, their counsel will. Starting in Mississippi and converting later is a four-figure legal exercise plus a state-level reckoning on the conversion, and it leaves a scar on the cap table. Form Delaware on day one if Delaware is where you are headed.

Mississippi does not make sense as a tax-shelter destination for non-Mississippi operators. The franchise tax treats LLCs of most tax classifications, the pass-through schedule is graduated rather than flat, and the privacy features are not meaningful enough to draw a Wyoming or New Mexico shopper. Mississippi is a reasonable home for people doing business in Mississippi, and that is the right market for the state's statute, fees, and administrative system.

One tactical note for the 2019 filer. If the LLC will have capital employed in Mississippi of any substance, model the franchise tax before the Certificate of Formation goes in. A founder who has read only about the $50 filing fee and the $25 Annual Report is priced into the entity on the filing side and surprised by the franchise-tax side when the first Form 83-105 comes due. The HB 1601 phase-down is real and the direction is down, but the 2019 liability is on a schedule that still reaches the balance sheet, and the minimum floor does not phase out with the rate.

Sources

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