35 Miss. Admin. Code Pt. III, Subpt. 2, Ch. 04 — Interest Income

100 Interest received by or credited to the taxpayer constitutes gross income and is fully
taxable, unless specifically exempt or excluded by statute. Interest income includes but is
not limited to, interest on savings or other bank deposits; interest on coupon bonds; interest
on an open account, a promissory note, a mortgage, or a corporate bond or debenture; the
interest portion of a condemnation award; usurious interest; interest on legacies; and
interest on life insurance proceeds held under an agreement to pay interest thereon.
101 Miss. Code Ann. Section 27 -7-15(4)(d) provides that gross income does not include
interest on obligations of the United States or its possessions, securities issued under the
provisions of the Federal Farm Loan Act of 1916, bonds issued by the War Finance
Corporation, or obligations of the State of Mississippi or its political subdivisions.
102 31 U.S.C. Section 3124(a) prohibits states from imposing an income tax on interest income
from direct obligations of the United States government. In addition, the enabling
legislation for many federal obligations and or instrumentalities prohibit state taxation on
income.
103 "Obligations of the United States" refers to obligations issued to secure credit to carry on
the necessary functions of government. United States obligations can also be defined as
government obligations used to finance the national debt. Examples of United States
obligations include U.S. Treasury Securities such as savings bonds, Treasury bills, bonds,
notes and certificates.
104 Interest on obligations of the State of Mississippi and any political subdivision thereof is
wholly exempt from tax. The term "obligations of the State of Mississippi" means any
obligation backed by the credit of the State of Mississippi. "Any political subdivision"
means any county, city or town including special districts such as road, water, sewer,
reclamation, drainage, levee, school or similar districts. Interest received upon obligations
of any state or its political subdivisions other than Mississippi is taxable.
105 Interest income earned in connection with repurchase agreements is subject to tax. A
repurchase agreement is an agreement with a commitment by the seller (dealer) to buy a
security back from the purchaser (customer) at a specified price at a designated future date.
It represents a collateralized short -term loan where the collateral may be a federal
obligation such as a treasury security or federal agency security. The interest earned is
interest on a loan of funds rather than a direct payment of interest on a federal obligation;
therefore, it does not qualify for exemption.
106 A taxpayer's pro rata portion of interest dividends distributed by a Regulated Investment
Company, as defined in I.R.C. Section 851, is nontaxable to the extent that such pro rata
portion represents interest received by the Regulated Investment Company from
governmental securities which would be exempt for Mississippi income tax purposes if
such governmental securities were directly held by the taxpayer.
107 If the governmental agency merely acts as guarantors on loans made by a private lender,
such loans are not construed to be direct obligations of the government and the interest
accruing on such loans is taxable. A governmental obligation that is secondary, indirect or
contingent, such as a guaranty of a non -governmental obligor's primary obligation to pay
the principal amount of and interest on a note, is not an obligation of the type exempted
under 31 U.S.C. Section 3124(a).
108 Taxable interest income includes, but is not limited to, interest earned on obligations from
the following agencies, organizations and associations:

# 1.

Building and Loan Associations

# 2.

Credit Unions

# 3.

Export-Import Bank of the United States

# 4.

Farmers Home Administration

# 5.

Federal Agricultural Mortgage Corporation (Farmer Mac)

# 6.

Federal Home Loan Mortgage Corporation (Freddie Mac)

# 7.

Federal Housing Administration

# 8.

Federal National Mortgage Association (Fannie Mae)

# 9.

Government National Mortgage Association (Ginnie Mae)

# 10.

Merchant Marine (Maritime Administration)

# 11.

Money Market Certificates

# 12.

Mortgage Participation Certificates

# 13.

Postal Savings Account

# 14.

Savings and Loan Associations

# 15.

Small Business Administration

# 16.

Asian Development Bank

# 17.

Inter-American Development Bank

# 18.

International Bank for Reconstruction and Development (World Bank)

# 19.

Washington D.C. Metro Area Transit Authority
109 Tax-exempt interest includes, but is not limited to, interest earned on obligations from the
following agencies, organizations or associations:
1. U. S. Treasury
2. Government of American Samoa
3. Government of Guam
4. Government of Puerto Rico
5. Government of Virgin Islands
6. Government of Northern Mariana Islands
7. Bank for Cooperatives
8. Commodity Credit Corporation
9. Farm Credit Banks
10. Farm Credit System Insurance Corporations
11. Federal Deposit Insurance Corporation
12. Federal Financing Bank
13. Federal Home Loan Banks
14. Federal Intermediate Credit Banks
15. Federal Land Bank Associations
16. Financial Assistance Corporation
17. Financing Corporation
18. General Services Administration (GSA)
19. Housing and Urban Development - General Insurance Fund
i. Armed Services Mortgage Insurance
ii. Mutual Mortgage Insurance Fund
iii. National Defense Housing Insurance
iv. Rental Housing Insurance
v. War Housing Insurance

# 20.

National Credit Union Administration Central Liquidity Facility

# 21.

Production Credit Association

# 22.

Student Loan Marketing Association (Sallie Mae)

# 23.

Tennessee Valley Authority (TVA)

# 24.

United States Postal Service
110 Interest received from a federal or state government that was earned on other than
investment obligations, such as interest on tax refunds, is subject to Mississippi income
tax and should be included in gross income.
111 (Reserved)
35.III.2.04 revised effective January 1, 2021