Sales tax on groceries reduced on July 1

Mississippi has reduced the state sales tax rate on groceries from 7 percent to 5 percent, effective July 1, as part of a major tax overhaul.

What qualifies as groceries

The reduced 5% rate applies to food or drink for human consumption.

Prepared foods, such as restaurant meals or takeout, are not eligible for the reduced rate and remain taxed at the general 7 percent rate.

All other taxable retail sales, including non-grocery items and groceries not eligible for food stamps, continue to be taxed at the 7 percent rate.

Mississippi retailers must report sales of qualifying groceries at the new 5% rate using specific codes on their tax returns, while other sales remain reported at 7%.

Mississippi enacted sweeping tax reforms in 2025 through House Bill 1, known as the “Build Up Mississippi Act.” This legislation represents one of the most significant overhauls of the state's tax system in decades, with major changes to income, sales, and excise taxes, as well as adjustments to public employee retirement and municipal funding.

The following are the major components:

Elimination of individual income tax

• Phased Reduction —The state’s flat individual income tax rate will be reduced from 4.4% in 2025 to 4% in 2026, then to 3.75% in 2027, and further down to 3% by 2030.

• Trigger Mechanism — Starting in 2031, further reductions are possible each year if state revenue growth meets certain thresholds, eventually phasing the rate down to 0% and fully eliminating the individual income tax.

Full elimination could occur as early as 2037, but the actual pace depends on state revenue performance.

Gasoline excise tax increase

• Incremental hike — The gasoline tax rises from 18.4 cents to 27.5 cents per gallon over three years (2025–2027), with future increases tied to inflation (capped at 1 cent every other year).

The additional revenue is earmarked for infrastructure improvements and the State Aid road fund.

Municipal and property tax adjustments

• Sales Tax Diversion — The diversion of 18.5% of general sales tax revenue to municipalities is ended for goods taxed at the full 7%, with those funds retained by the state. Diversion continues for items taxed at lower rates, such as vehicles.

• Property Tax Credit — A new fund provides property tax credits of $200 per year for residents aged 65 and older, funded by the increased use tax.

Public Employee Retirement System (PERS) changes

• New tier — A fifth tier is created for state employees hired after March 1, 2026, with reduced benefits to control future liabilities.

• Legislative retirement — The Supplemental Legislative Retirement Plan is terminated for lawmakers elected after March 1, 2026.

These reforms collectively represent a major shift in Mississippi’s approach to taxation, with a focus on reducing income and grocery taxes, increasing fuel and use taxes, and restructuring public employee benefits and municipal funding.