January 13, 2006

Mississippi legislature OKs consumer tax changes

MIAMI (Reuters) - Mississippi state legislators passed by
wide margins a bill opposed by Gov. Haley Barbour that raises
cigarette taxes and phases out a 7 percent state tax on
groceries, a legislative aide said on Friday.

Barbour, a Republican, opposes tax hikes and is worried
about the likely revenue losses from reductions in grocery
taxes contained in the bill passed by 90 to 30 on Thursday by
the state House, a spokesman for the governor said on Friday.

"He's against possible revenue losses at a time when the
state is recovering from Hurricane Katrina. It may not be
prudent," said the spokesman, Pete Smith.

Mississippi was badly hit by Katrina, the August 29 storm
which devastated New Orleans, displaced hundreds of thousands
of people, and disrupted local businesses and governments still
struggling to recover.

The governor, who told legislators this week that state
revenue through the six months through December had run $80
million over initial forecasts, was studying the tax bill and
had not yet decided on a possible veto, Smith said.

The bill, which passed the state Senate by 36 to 15, would
cut the state's 7 percent tax rate on groceries to 4.5 percent
on July 1 and eliminate it by 2014. The tax now delivers about
$345 million annually a year to the state.

In addition, the bill would raise the state's cigarette tax
from 18 cents a pack to 75 cents in July and add another 25
cents in the middle of 2007. Revenue from cigarette taxes would
increase by an estimated $131 million in the first year after
the hike and an estimated $181 million during the second year.

The cigarette taxes would go into a special fund for local
governments to make up for the lost revenue from grocery taxes.

The strong margins for the bill in both the Senate and the
House appeared sufficient to override a gubernatorial veto, if
such votes are required.