Can a Mississippi county grant both manufacturing and free port warehouse tax exemptions to related entities?

Plain-English summary

Two related entities in Tishomingo County had received various manufacturing and free port warehouse exemptions. Raw materials transferred between them during manufacturing. The county wanted to know whether it could grant both kinds of exemption.

The AG: yes, if the entities qualify. Both exemptions are discretionary; both can be granted; eligibility is a fact question for the Board.

Section 27-31-101 (manufacturing exemption): Authorizes county boards to grant ad valorem tax exemptions to manufacturers and other new entities for a specified period, subject to limitations. Discretionary.

Section 27-31-51 et seq. (free port warehouse exemption): Free port warehouses must be licensed. Personal property in transit qualifies under one of four scenarios in Section 27-31-53. The exemption is "in addition to all other exemptions heretofore granted" (Section 27-31-61).

The 2020 Miller opinion clarified the "not more than one (1) other location in this state" requirement: a processing/production facility at the same physical address as the warehouse, but in a separate facility/structure/place/area as determined by the governing authority, can count as a separate location. So an integrated manufacturing/warehouse complex on one parcel can qualify, if the Board finds the production and storage are separate facilities.

Procedure: Board makes factual findings on the entities and property, spreads them on the minutes, and exercises discretion on whether to grant each exemption.

The 2000 Gamble opinion stresses that the Board "must review the factual situation as it relates to the goods in question being stored during the manufacturing process, determine if these goods meet one of the [four] requirements set forth in the statute, and then make its decision whether to grant the exemption after such review."

The AG declined to opine on past actions of the Board (Section 7-5-25; Magee 2008).

What this means for you

For county attorneys and boards of supervisors

Under the opinion, whether each entity is eligible for the manufacturing exemption (Sections 27-31-101 et seq.) and the free port warehouse exemption (Sections 27-31-51 et seq.) "is a question of fact for the governing authorities of Tishomingo County," and if an entity is eligible, the Board "ha[s] the discretionary authority to grant both exemptions." The opinion stresses the Board's role in making findings: even where in-transit property fits one of the statute's four scenarios, the grant is discretionary, and the Board "must review the factual situation . . . determine if these goods meet one of the [four] requirements set forth in the statute, and then make its decision whether to grant the exemption after such review." Those factual determinations should be "spread upon its minutes." The free port exemption is "in addition to all other exemptions heretofore granted" under Section 27-31-61. The opinion declines to address the Board's past actions, because under Section 7-5-25 the office may opine only prospectively.

For manufacturing and free port warehouse operators

The opinion confirms the two exemptions are not mutually exclusive: a county may grant both to a qualifying entity. For an operation with a production facility at the same address as its warehouse, the opinion (citing the Miller opinion) says a processing or production facility at the same physical address that the governing authority "determines to be a completely separate facility, structure, place, or area" from the warehouse "may qualify as 'not more than one (1) other location in this state' as required by Section 27-31-53." Whether to grant remains, as the opinion puts it, "within the sole discretion of the governing authority." The free port warehouse must be licensed by the county or municipality where it is located under Section 27-31-51.

Common questions

Q: Can a Mississippi county grant both the manufacturing and free port warehouse exemptions to the same entity?
A: Yes, if the entity qualifies. The opinion holds that eligibility "is a question of fact" for the Board, and that an eligible entity may receive both exemptions at the Board's discretion.

Q: Does the county have to grant an exemption to a qualifying entity?
A: No. The opinion describes the grant as discretionary: even where in-transit property fits one of the statute's four scenarios, the Board reviews the facts "and then make[s] its decision whether to grant the exemption."

Q: Can a production facility at the same address as a warehouse still count as a separate location?
A: It can. The opinion, citing Miller, says a production facility at the same physical address that the governing authority determines to be "a completely separate facility, structure, place, or area" from the warehouse may qualify as "not more than one (1) other location in this state" under Section 27-31-53.

Q: Does the free port exemption come on top of other exemptions?
A: Yes. The opinion quotes Section 27-31-61: the free port warehouse exemption "shall be in addition to all other exemptions heretofore granted by the laws of the State of Mississippi."

Q: Why didn't the AG address the exemptions already granted?
A: The opinion explains it "cannot opine on past actions" of the Board, because Section 7-5-25 limits the office to prospective questions of law; an AG opinion "can neither validate nor invalidate past action."

Background and statutory framework

The opinion addresses two separate ad valorem exemptions and treats both as discretionary, fact-driven decisions for the county's governing authority:

Manufacturing exemption (Section 27-31-101 et seq.): authorizes the governing authorities to grant exemptions from ad valorem taxation "to certain manufacturers and other new entities for a specified period of time, subject to certain limitations." Whether the entities qualify "is for the Board to decide, and it has the discretion to determine whether to grant the exemption."

Free port warehouse exemption (Section 27-31-51 et seq.): free port warehouses "must be licensed by the governing authorities of the county or municipality where the warehouse or storage facility is located" (Section 27-31-51). Personal property in transit is eligible "if it falls under one of four distinct scenarios specified in the statute" (Section 27-31-53), and the grant is discretionary after the Board's review (Gamble). The exemption is "in addition to all other exemptions heretofore granted" (Section 27-31-61).

The opinion relies on the Gamble opinion (the Board must review the factual situation and then decide) and the Miller opinion (a separate facility at the same address may qualify under Section 27-31-53), and it notes the Section 7-5-25 / Magee limit that the office opines only prospectively.

Citations and references

Statutes:

• Miss. Code Ann. § 7-5-25, AG opinion authority
• Miss. Code Ann. § 27-31-51 et seq., free port warehouse framework
• Miss. Code Ann. § 27-31-53, four scenarios for in-transit property eligibility
• Miss. Code Ann. § 27-31-61, free port exemption in addition to other exemptions
• Miss. Code Ann. § 27-31-101 et seq., manufacturing tax exemption

Prior AG opinions cited:

• MS AG Op., Magee (Aug. 29, 2008), AG opinions are prospective
• MS AG Op., Gamble (Oct. 20, 2000), Board reviews factual situation
• MS AG Op., Miller (May 13, 2020), separate facility at same address

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2022/08/P.Whitehead-August-2-2022-Ad-Valorem-Tax-Exemptions-for-Manufacturing-and-Free-Port-Warehouses.pdf

Original opinion text

August 2, 2022

Phillip M. Whitehead, Esq.
Attorney, Tishomingo County Board of Supervisors
Post Office Box 38
Tishomingo, Mississippi 38873

Re: Ad Valorem Tax Exemptions for Manufacturing and Free Port Warehouses

Dear Mr. Whitehead:

The Office of the Attorney General has received your request for an official opinion.

Background

According to your request, two related entities with operations in Tishomingo County have previously been granted various manufacturing and free port warehouse tax exemptions. During the manufacturing process, raw material assets are ultimately transferred between entities. You state that neither entity's inventory has been subject to ad valorem taxes because it is held in a free port warehouse before shipping to one other location within the state for production into a compound part that is ultimately shipped out of state.

Question Presented

May Tishomingo County grant the manufacturing exemption pursuant to Mississippi Code Annotated Sections 27-31-101 et seq. and the free port warehouse exemption for personal property in transit through the state pursuant to Mississippi Code Annotated Sections 27-31-51 et seq. to the entities in question?

Brief Response

Whether an entity is eligible for the manufacturing exemption under Sections 27-31-101 et seq. and the free port warehouse exemption under Sections 27-31-51 et seq. is a question of fact for the governing authorities of Tishomingo County. If an entity is eligible, the governing authorities of Tishomingo County have the discretionary authority to grant both exemptions.

Applicable Law and Discussion

As an initial matter, this office cannot opine on past actions of the Tishomingo County Board of Supervisors (the "Board"). Pursuant to Section 7-5-25, this office may only opine on prospective questions of law. An Attorney General's Opinion can neither validate nor invalidate past action. MS AG Op., Magee at *1 (Aug. 29, 2008). We offer the following opinion on the question of future action of the Board in granting potential ad valorem tax exemptions.

You ask about two different potential tax exemptions, the first one being Section 27-31-101, which authorizes the governing authorities to grant exemptions from ad valorem taxation to certain manufacturers and other new entities for a specified period of time, subject to certain limitations. Id. at (1). Ultimately, whether the entities qualify for tax exemption pursuant to Section 27-31-101 for property at various stages of the manufacturing process is for the Board to decide, and it has the discretion to determine whether to grant the exemption.

You also ask whether the two entities and their respective property are eligible for tax exemptions under Section 27-31-53, which pertains to free port warehouses. Free port warehouses must be licensed by the governing authorities of the county or municipality where the warehouse or storage facility is located. Miss. Code Ann. § 27-31-51. Personal property which is in transit in this state is eligible for the exemption if it falls under one of four distinct scenarios specified in the statute. Even if the personal property at issue fits under one of the four scenarios, the granting of the exemption is discretionary, and the governing authorities "must review the factual situation as it relates to the goods in question being stored during the manufacturing process, determine if these goods meet one of the [four] requirements set forth in the statute, and then make its decision whether to grant the exemption after such review." MS AG Op., Gamble at *1 (Oct. 20, 2000).

The free port warehouse exemption "shall be in addition to all other exemptions heretofore granted by the laws of the State of Mississippi." Miss. Code Ann. § 27-31-61.

One of the entities about which you inquire has a separate on-site production facility in addition to its warehouse. This office recently opined that a processing or production facility located at the same physical address as the storage facility or warehouse, which the governing authority determines to be a completely separate facility, structure, place, or area from the storage facility or warehouse, may qualify as "not more than one (1) other location in this state" as required by Section 27-31-53. MS AG Op., Miller at *2 (May 13, 2020). Miller reiterates that it is within the sole discretion of the governing authority of the county where the storage facility or warehouse is located to determine whether to grant an exemption to personal property being stored therein.

The questions you present require the Board to make factual determinations about the two entities' facilities and personal property, with such findings spread upon its minutes. Whether to grant exemptions under Sections 27-31-101 et seq. and 27-31-51 et seq. is left to the sole discretion of the Board.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Misty Monroe
Misty Monroe
Assistant Attorney General