Learn About the Estate Tax Requirements in Mississippi

Mississippi Estate Tax Used to Mean a Pick-Up Tax or Sponge Tax

Mississippi is known to be one of the most tax-friendly states for retirees. In addition, Mississippi is one of the majority of states that currently do not collect an estate tax at the state level. A few years ago, however, things were different before major changes took effect with regard to federal estate tax laws. What do federal estate tax laws have to do with Mississippi state estate taxes? Prior to January 1, 2005, Mississippi actually did collect a separate estate tax at the state level, called a "pick-up tax" or "sponge tax," that was equal to a portion of the overall federal estate tax bill.

What Is the Pick-Up Tax or Sponge Tax?

The "pick-up tax" or "sponge tax" is a state estate tax that is collected based on the state estate tax credit that the IRS allowed on the federal estate tax return, IRS Form 706, prior to January 1, 2005. Each state had different tax laws with regard to the pick-up tax, so the amount that a state would collect varied based on that state's own estate tax laws. In essence, however, the overall estate tax bill was not increased or decreased due to the pick-up tax. Instead, the total tax bill was apportioned between the IRS and state taxing authority.

So what does this mean in plain English? It means that a portion of the federal estate tax was actually taken away from the IRS and instead paid to the decedent's state taxing authority. As such, prior to January 1, 2005, if a deceased Mississippi resident owed federal estate taxes, then the Mississippi Tax Commission collected the pick-up tax from the deceased Mississippi resident's estate.

What Is the Future of the Mississippi Estate Tax?

Effective January 1, 2005, the pick-up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). In response to these changes in federal law that phased out the pick-up tax, some states that used to collect a pick-up tax chose to enact laws that allow the state to still collect a state estate tax. This is referred to as "decoupling" since the states that enacted a state estate tax no longer based their state estate tax laws on current federal estate tax laws.

The majority of states did absolutely nothing and therefore no longer collect a state estate tax; Mississippi was one of them. In addition, under the provisions of EGTRRA the pick-up tax was supposed to return in 2011, but the Tax Relief Act of 2010 did not include reinstatement of the pick-up tax, so don't count on Mississippi levying its own separate state estate tax anytime soon.

Does Mississippi Collect a State Inheritance Tax?

A state inheritance tax is a tax assessed against the share received by each individual beneficiary of an estate, as opposed to an estate tax, which is assessed against the entire estate. The answer to this question is no: Mississippi does not currently collect a state inheritance tax.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.