Deep Analysis of Mississippi Code § 57-73-21: The Research and Development Skills Tax Credit and the Tiered Jobs Incentive Framework

Mississippi Code Annotated § 57-73-21 establishes a tiered system of income tax credits for businesses that create new jobs, providing a specific annual credit of $1,000 for each position requiring research and development skills. This statute serves as the primary mechanism for the state to incentivize high-technology employment and industrial expansion by reducing tax liabilities based on the economic development level of the county where the jobs are located.1

The legislative architecture of Section 57-73-21 represents a sophisticated approach to regional economic development, balancing the need for broad employment growth with a targeted desire to cultivate a high-skilled, technical workforce. At its core, the statute functions as a performance-based incentive program where the state’s financial support is directly tied to the actual increase in a company’s headcount and the specific qualifications of the newly hired staff.3 The law provides three primary avenues for tax relief: the general Jobs Tax Credit (JTC), the Research and Development Skills Tax Credit, and the National or Regional Headquarters Credit.5 Each of these incentives is designed to address different facets of corporate expansion, yet they are unified under the administrative oversight of the Mississippi Department of Revenue (DOR) and the policy direction of the Mississippi Development Authority (MDA).7 Understanding the application of this law requires a deep dive into the county-tier ranking system, the rigid educational and professional criteria for R&D positions, and the comprehensive certification process mandated by the state revenue office.

The Statutory Basis and Scope of Section 57-73-21

The statute explicitly targets “permanent business enterprises,” a term that carries significant weight in the application of the law. As defined by the Mississippi Code and supplemental administrative regulations, this designation primarily includes businesses engaged in manufacturing, processing, warehousing, distribution, wholesaling, and research and development.1 This focus on “base industries” reflects a strategic decision to support businesses that export goods and services outside Mississippi, thereby importing wealth and supporting secondary economic activity in the local service sector.

Beyond these core industries, the law empowers the Mississippi Development Authority to designate additional sectors as eligible for these credits through formal rule-making. This includes specialized facilities such as air transportation and maintenance hubs, final destination resort hotels with a minimum of 150 guest rooms, movie industry studios, and certain telecommunications operations.5 By allowing for this regulatory flexibility, the statute ensures that it can adapt to emerging industries that might not have been prevalent at the time of the law’s original drafting. However, certain sectors are strictly excluded from these benefits, most notably retail businesses, gaming or casino operations, and, as of recent legislative updates, medical cannabis establishments.5

The Mechanism of Job Creation Measurement

The law is fundamentally centered on the “net increase” in employment. To determine eligibility, a business must compare the monthly average number of full-time employees subject to Mississippi income tax withholding for the current taxable year with the corresponding period of the prior taxable year.1 This measurement technique prevents companies from claiming credits for temporary hiring surges or seasonal fluctuations. The requirement that employees be subject to Mississippi withholding ensures that the state’s fiscal sacrifice (the tax credit) is at least partially offset by the personal income taxes paid by the newly hired residents.1

A critical protection within the statute is the requirement for maintaining employment levels. If a business qualifies for the credit in Year 1 by creating the required number of jobs, it must maintain that headcount through the five-year life of the credit.1 If the net employment increase falls below the statutory threshold in any given year, the credit is disqualified for that year, though it may be resumed if the headcount is restored in subsequent years, provided the five-year window has not expired.1

The Tiered County Ranking System

The potency of the incentives under § 57-73-21 is governed by a hierarchical ranking of Mississippi’s 82 counties. Annually, by December 31, the Department of Revenue must rank and designate the state’s counties based on a combination of the highest unemployment rate and the lowest per capita income for the most recent 36-month period.1 This 36-month look-back period is crucial, as it smooths out short-term economic anomalies and ensures that the designations reflect long-term structural economic needs.

The rankings divide the state into three tiers, each with distinct requirements for job creation and varying levels of tax relief. Tier Three represents the most economically distressed areas, while Tier One represents the most developed counties.

2025 County Designations and Regional Impact

The 2025 designations illustrate the geographic disparity the statute aims to correct. Tier Three counties are largely concentrated in the rural Mississippi Delta and the eastern border regions, areas that have historically struggled with depopulation and industrial decline.13 Tier One counties, conversely, follow the state’s primary growth corridors: the Jackson metropolitan area (Madison, Rankin, Hinds), the Gulf Coast (Harrison, Jackson, Hancock), and the DeSoto County region bordering Memphis.13

The implications for a business choosing a location are stark. A manufacturing plant creating 100 jobs in Issaquena County (Tier Three) would receive a tax credit four times as large as a similar plant in Madison County (Tier One), assuming equal payroll levels.4 This heavy weighting toward Tier Three reflects the “gap-filling” intent of the legislature, providing enough financial incentive to offset the potential logistical or workforce training challenges associated with more rural areas.4

2025 Comprehensive County Ranking List

The following table provides the official 2025 Department of Revenue ranking. This list is updated annually and becomes effective for the tax years of permanent business enterprises beginning after the date of designation.1

For businesses concerned about the stability of their tax planning, the statute provides a “grandfathering” clause. If a county is moved to a higher development tier (e.g., from Tier Three to Tier Two) after a company has already planned or initiated an expansion, the DOR can prescribe certification procedures that allow the company to claim credits at the original, more favorable rate.1

The Research and Development Skills Tax Credit

While the general Jobs Tax Credit addresses broad headcount, Subsection (6) of § 57-73-21 provides a targeted, qualitative incentive: the Research and Development Skills Tax Credit.2 This credit is designed specifically to attract and retain the “creative class” of scientific and technical professionals—chemists, engineers, data scientists, and researchers—who are essential for modern industrial competitiveness.3

The R&D Skills Tax Credit is valued at $1,000 per net new full-time employee per year for a period of five years.3 Unlike the general JTC, there is no minimum number of R&D positions that must be created; a company hiring a single qualifying research scientist can claim the credit, provided they are increasing their overall headcount.3 This makes the credit particularly attractive for small biotech startups or specialized engineering firms.

Rigorous Qualification Standards

The Department of Revenue applies a strict four-part test to determine if an employee and their position qualify for the $1,000 credit. These criteria go beyond simple job titles and examine the actual nature of the work and the credentials of the individual performing it.3

1. Direct Engagement in R&D: The position must be primarily engaged in research and development activities. This is defined as systematic experimentation or investigative work aimed at the discovery of new information or the improvement of products, processes, or technologies.3
2. Educational Attainment: The job must require, at a minimum, a bachelor’s degree in a scientific or technical field of study (such as Engineering, Chemistry, Physics, or Computer Science) from an accredited four-year college or university.3
3. Domain Expertise: The employee must be employed in their specific area of expertise. For example, a trained chemist working in a human resources role would not qualify, even if they possess the required degree.3
4. Professional Compensation and Experience: The employee must be compensated at a professional level. Furthermore, Department of Revenue guidance often interprets “professional level” as requiring at least two years of job-related experience in the field, ensuring that the credit is applied to seasoned technical talent rather than just entry-level internships.5

Financial Limitations and Tax Application

The R&D Skills Credit is non-refundable and subject to a “50% liability cap.” This means that the combined total of the Jobs Tax Credit, the Headquarters Credit, and the R&D Skills Credit cannot exceed 50% of the taxpayer’s total Mississippi state income tax liability for any given year.3

Any credit amount that cannot be used because of this 50% limitation or due to insufficient tax liability may be carried forward for up to five years from the close of the tax year in which the qualified jobs were established.1 The “earliest unexpired credit” is used first to prevent the loss of carryforward balances.6

Local State Revenue Office Guidance and Administrative Procedures

The Mississippi Department of Revenue (DOR) maintains a rigorous certification process for any business wishing to claim credits under § 57-73-21. This is not an “automatic” credit that can be simply calculated on a tax return; it requires prior authorization and documented evidence of eligibility.6

The Certification and Authorization Process

To qualify for the Research and Development Skills Tax Credit, a business must follow a two-step administrative process involving the DOR’s Office of Tax Policy and Economic Development.6

First, the business must submit a formal letter of request for the credit. This letter serves as the application and must include comprehensive details for each employee and position for which the credit is being sought.6 The required data includes:

• Official job title and a descriptive summary of the job’s purpose.6
• Specific educational requirements and experience requirements for the role.6
• A copy of the employee’s bachelor’s degree or transcripts as proof of scientific/technical training.6
• The number of hours worked per week and the annual salary or compensation.6
• The date of hire and the employee’s social security number for withholding verification.6

Taxpayers are strictly cautioned by the DOR: Do not take the credit on a tax return until you receive a formal letter of authorization from the Department of Revenue.6 Once authorized, the company must attach a copy of the authorization letter and a detailed computation schedule to its Mississippi income tax return each year the credit is claimed.6

Reporting on Tax Forms

The credits are reported using the Tax Credit Summary Schedule, which differs depending on the entity’s filing status.

• Individuals and Fiduciaries: Use Form 80-401.18
• Corporations: Use Form 83-401.18
• Pass-Through Entities (S-Corps, LLCs, Partnerships): Use Form 84-401.18

Each credit type is identified by a specific two-digit code. While these codes can change annually, they are typically found in the instructions for the resident and non-resident income tax returns.20 The DOR also requires the filing of Form 70-801-13 (Application for Certification of Economic Incentives) for the broader Jobs Tax Credit, which details the overall project scope and investment.17

Interaction with Other Incentives: The SMART Business Act

For companies engaged in R&D that might not meet the strict payroll-based criteria of § 57-73-21, or for those looking to expand their R&D budget through university partnerships, the Strengthening Mississippi Academic Research Through Business (SMART) Act provides a complementary incentive.5

The SMART Business Act offers a 25% cash rebate on qualified research costs incurred as a result of a research agreement with a Mississippi public university or research corporation.5

• Rebate vs. Credit: Unlike the R&D Skills Credit, which is a reduction in taxes owed, the SMART Act provides a direct cash rebate (reimbursement).6
• Capping: The rebate is capped at $1 million per investor per fiscal year, with a total statewide limit of $5 million per year for all investors.6
• Application: This program is administered by the Mississippi Institutions of Higher Learning (IHL). Investors must apply and receive approval for the research agreement before the work begins to be eligible.6

Example Scenario: High-Tech Manufacturing Expansion

To illustrate the application of § 57-73-21, consider “AeroFrontier LLC,” an aerospace engineering firm opening a new manufacturing and research facility in Lowndes County (a Tier One county in 2025).13

Year 1: Hiring and Investment

AeroFrontier hires 40 new full-time employees to staff its facility. The headcount consists of:

• 10 Research Engineers (Master’s in Aerospace Engineering) earning $100,000 each.
• 30 Advanced Manufacturing Technicians earning $50,000 each.
• Total New Payroll: $2,500,000.

Eligibility Calculations

1. Jobs Tax Credit (Tier One): As a Tier One county, the minimum threshold is 20 jobs.1 AeroFrontier created 40 jobs, thus qualifying for a credit equal to 2.5% of the total new payroll.4

• Calculation: $2.5\% \times \$2,500,000 = \$62,500$ per year for five years.

1. R&D Skills Tax Credit: The 10 Research Engineers meet all criteria (degree, expertise, R&D engagement).3 AeroFrontier applies to the DOR and receives authorization for the $1,000 credit per engineer.6

• Calculation: $10 \text{ employees} \times \$1,000 = \$10,000$ per year for five years.

1. Total Annual Credit Earned: $\$62,500 + \$10,000 = \$72,500$.

Applying the Credit to Tax Liability

AeroFrontier’s state income tax liability for Year 1 is $120,000.

• The 50% liability cap limits the usable credit to $60,000 ($120,000 \times 0.50$).3
• AeroFrontier uses $60,000 of its $72,500 credit to reduce its tax bill to $60,000.
• The remaining $12,500 is carried forward for up to five years.1

Legislative Trends and Future Outlook (2024–2025)

The Mississippi Legislature has been active in refining the state’s tax structure, which directly impacts the utility of § 57-73-21 credits.

Income Tax Rate Reductions (HB 531)

One of the most significant changes is the ongoing phase-out of the state’s personal income tax. For the 2024 tax year, the rate for income over $10,000 is 4.7%, and it is scheduled to drop to 4.4% in 2025.20 For pass-through entities (LLCs, S-Corps), where the company’s income is taxed at the individual level of the owners, this lower tax rate naturally reduces the total tax liability. Since these credits are non-refundable and capped at 50% of liability, a lower tax rate effectively lowers the “ceiling” of the credit’s value.

Franchise Tax Phase-Out

Mississippi is also in the process of eliminating its franchise tax, with the rate decreasing annually until it hits zero in 2028.24 In previous years, businesses could apply their § 57-73-21 credits against either income tax or franchise tax. As the franchise tax disappears, businesses must rely solely on their income tax liability to realize the value of their jobs and R&D credits.

The Debate Over Pass-Through to Employees (SB 2658 / SB 2783)

A persistent topic in the Mississippi Legislature has been the proposal to allow businesses to “pass through” their unused credits directly to their employees.2 Under this proposed mechanism, if a company has more credits than it can use due to the 50% cap, it could elect to transfer a portion of those credits to its individual employees, essentially giving them a state income tax break as a recruitment or retention tool.10 While this has not yet become universal law, it remains a key area of interest for R&D-heavy firms that often have high credit balances but relatively slim profit margins in their early years.25

Strategic Implications for Business Planning

For corporations and startups alike, § 57-73-21 is more than just a tax code; it is a critical component of site selection and long-term financial modeling. To maximize the benefit, businesses should consider several strategic imperatives:

1. Tier Optimization: When choosing between two similar sites, the difference between a Tier Three and a Tier One county can represent hundreds of thousands of dollars in tax savings over a five-year period.4
2. Stacking Credits: The most successful expansions combine the Jobs Tax Credit with the R&D Skills Credit and, where applicable, the Headquarters Credit ($500-$2,000 per job) and university partnership rebates.4
3. Proactive Compliance: Because the DOR requires a formal letter of authorization before the credit is claimed, companies should integrate this process into their HR and onboarding workflows to ensure all necessary educational credentials (degrees, transcripts) are collected at the time of hire.6
4. Monitoring the 50% Cap: For capital-intensive projects with high hiring but low initial profitability, the 5-year carryforward window is relatively short. Companies must model their projected income to ensure they don’t “lose” credits that expire before they can be used.1

Conclusion

Mississippi Code Ann. § 57-73-21 remains a cornerstone of the state’s economic development strategy, providing a clear and measurable path for businesses to reduce their tax burden while contributing to the state’s industrial and technical growth. The tiered county system ensures that development is incentivized where it is most needed, while the Research and Development Skills Tax Credit specifically supports the transition to a knowledge-based economy. Although the ongoing reduction in state tax rates may alter the nominal utility of these credits, the statute’s structured approach to rewarding high-quality employment provides a stable and predictable environment for corporate investment. For any business looking to expand within the Magnolia State, a deep understanding of the Department of Revenue’s administrative guidance is essential to successfully navigating the path from job creation to tax realization.

R&D Tax Credit Preparation Services

Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed provides state and federal R&D tax credit preparation and audit services to all 50 states.

If you have any questions or need further assistance, please call or email our CEO, Damian Smyth on (800) 986-4725.
Feel free to book a quick teleconference with one of our national R&D tax credit specialists at a time that is convenient for you.

R&D Tax Credit Audit Advisory Services

creditARMOR is a sophisticated R&D tax credit insurance and AI-driven risk management platform. It mitigates audit exposure by covering defense expenses, including CPA, tax attorney, and specialist consultant fees—delivering robust, compliant support for R&D credit claims. Click here for more information about R&D tax credit management and implementation.

Our Fees

Swanson Reed offers R&D tax credit preparation and audit services at our hourly rates of between $195 – $395 per hour. We are also able offer fixed fees and success fees in special circumstances. Learn more at https://www.swansonreed.com/about-us/research-tax-credit-consulting/our-fees/