Mississippi DOR Income Tax Audit Protest

The situation

James, 52, owns Delta Logistics Solutions LLC, a Jackson, Mississippi freight brokerage with 12 employees and $1.8M in annual revenue, with customers in Mississippi, Alabama, and Louisiana. In January 2026 he received a Mississippi DOR assessment: "Mississippi Corporate Income Tax + Franchise Tax: $19,400 (penalty $2,910 + interest $1,400 = $23,710 total), tax period 2022–2024."

The MDOR auditor applied Mississippi's full three-factor apportionment to Delta's revenue, treating all $1.8M as Mississippi-source income, and assessed franchise tax on 100% of Delta's capital employed. James's Alabama and Louisiana customers should reduce the Mississippi apportionment fraction significantly, both for income tax (three-factor formula) and franchise tax (capital employed formula).

(a) The apportionment calculation is wrong for both income tax and franchise tax. Under Miss. Code Ann. § 27-7-23, Delta's income tax is apportioned using a three-factor formula. Only Mississippi-sourced revenue (freight brokerage services where the customer is in Mississippi, or freight moving through Mississippi) enters the sales factor numerator. Delta's Alabama-based and Louisiana-based customers reduce the Mississippi fraction from 100% to roughly 55-65%. Similarly, the franchise tax under § 27-13-5 applies only to capital "employed in Mississippi", capital employed to serve Alabama and Louisiana customers is not Mississippi-employed capital.

(b) Mississippi is in the process of phasing out its income tax under 2022 legislation, this creates multi-year comparisons between higher historical rates and the transitioning rates, which MDOR auditors use to detect discrepancies. James needs to understand which years' assessments are subject to what rate.

(c) The Board of Review is not independent. It's an internal MDOR body. James should prepare a complete, well-documented appeal for the Board of Review stage, building the factual record (customer locations, services delivered in each state, capital allocation by state), because if it goes to the BTA, he'll need this record in the independent proceeding.

(d) Butler Snow quoted James $5,000 for "Board of Review appeal preparation and representation." The apportionment recalculation + Board of Review appeal letter + BTA petition preparation is largely self-executable with the right Mississippi-specific structure.

Who receives this

Mississippi small businesses (S-corps, LLCs, C-corps) with multi-state operations receiving Mississippi DOR income tax or franchise tax assessments for disputed apportionment. Secondary: Mississippi businesses contesting the scope of Mississippi's franchise tax capital employed calculation; Mississippi manufacturers contesting the scope of manufacturing incentive credits.

Why the agency will not advise you

MDOR cannot advise audit respondents on how to contest its own assessments. The Board of Review is MDOR-internal, not independent. The BTA is genuinely independent (explicitly "independent of the Department of Revenue") but is not well-known to small businesses. MDOR's Taxpayer Access Point enables online BTA filing but provides no strategy guidance. Butler Snow, Brunini Grantham, and Bradley Arant are the incumbent professionals ($2,500–$10,000). No self-serve Mississippi income tax audit protest navigator exists.

Key facts, with sources

• Mississippi's income tax audit appeal process has two stages: (1) Board of Review appeal, within 60 days of MDOR's audit assessment, the taxpayer files an appeal to MDOR's Board of Review. The Board of Review is an internal MDOR body. If the Board of Review denies the appeal, the taxpayer has 60 days from the Board of Review's final order to appeal to the Mississippi Board of Tax Appeals. (2) Board of Tax Appeals (BTA), the BTA is a 'quasi-judicial state agency independent of the Department of Revenue that hears administrative appeals from orders of the Board of Review.' The BTA is entirely separate from MDOR. Appeals may be filed online through Mississippi's Taxpayer Access Point (TAP) or by mail/fax/in-person. The BTA requires submission of a 'Notice of Appeal or Objection' form and three copies. After the BTA, appeal goes to Chancery Court. The BTA's existence as a genuinely independent body is the key strategic fact for self-represented taxpayers. Source: Mississippi Board of Tax Appeals · Frequently Asked Questions — Mississippi Board of Tax Appeals · AUDIT PROCEDURES — Mississippi Department of Revenue
• Mississippi imposes both a corporate income tax (flat 5% rate as of 2025, reduced from 5% as Mississippi phases out its income tax under 2022 legislation, rate scheduled to drop further in subsequent years) and a franchise tax (0.25% on capital employed in Mississippi, minimum $25). Mississippi income tax audits of businesses most commonly focus on: (1) Franchise tax nexus and capital apportionment, the franchise tax is levied on capital 'used, employed, or invested in Mississippi' under Miss. Code Ann. § 27-13-5; multi-state businesses dispute what fraction of their capital is Mississippi-employed; (2) Income tax apportionment, three-factor formula under § 27-7-23 (property, payroll, sales); service businesses frequently dispute what portion of their sales are Mississippi-sourced; (3) Mississippi's income tax phase-out creates complexity, Mississippi enacted legislation in 2022 to eliminate the state income tax over time; the phase-out creates reconciliation issues for multi-year audits spanning pre- and post-phase-out periods. Source: Mississippi Tax Appeal Guide: Steps to Dispute Taxes — GetTaxReliefNow · Forms and Instructions — Mississippi Board of Tax Appeals

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Mississippi Board of Tax Appeals
2. Frequently Asked Questions — Mississippi Board of Tax Appeals
3. AUDIT PROCEDURES — Mississippi Department of Revenue
4. Mississippi Tax Appeal Guide: Steps to Dispute Taxes — GetTaxReliefNow
5. Forms and Instructions — Mississippi Board of Tax Appeals