35 Miss. Admin. Code Pt. III, Subpt. 2, Ch. 06 — Dividend Income

100 Dividends are included in gross income unless specifically excluded under Miss. Code
Ann. Section 27-7-15(4)(i).
101 The term "dividend" for the purpose of the Mississippi Income Tax Law means any
distribution of property in the ordinary course of business, even though extraordinary in
amount, made by a domestic or foreign corporation to its shareholders out of earnings and
profit.
102 The earnings and profits of the taxable year shall be computed as of the close of such year,
without reduction by reason of any distributions made during the taxable year. Liquidating
dividends do not have the status of dividends for Mississippi income tax purposes. Such
distributions constitute a return of investment and the gain or loss realized or sustained is
one of capital.
103 Dividends must be included in gross income of the shareholder if such dividends have not
already borne a tax in Mississippi or another state prior to the receipt of same by such
shareholders.
104 In order for dividend interest from a domestic mutual building and loan association to be
excluded from gross income, it must be clearly shown to the satisfaction of the
Commissioner that such dividend received has been used to reduce the total interest paid.
105 Dividends are taxable to the taxpayer who has the right to receive them. If a dividend is
paid after stock is sold, whether the purchaser or seller includes the dividend in gross
income depends on when the sale took place. When stock is sold, and a dividend is both
declared and paid after the sale, such dividend is not gross income to the seller. When stock
is sold after the declaration of a dividend and after the date the seller becomes entitled to
the dividend, the dividend is income to the seller. W hen the sale of stock occurs between
the time of declaration and the payment of the dividend, the purchaser becomes entitled to
the dividend and the dividend is income to the purchaser. In some cases the purchaser may
be considered the recipient of the dividend even though they had not received the legal title
to the stock and they did not receive the dividend. For example, when the seller retains the
legal title to the stock as trustee solely for the purpose of securing the payment of the
stock's purchase price, with the understanding that the seller will apply the dividends as
payment to the stock's purchase price. In this case, the dividends are considered to be
income to the purchaser.
106 If the purchaser includes the amount of an anticipated dividend in the stock purchase price,
this will not exempt the purchaser from income tax on the dividend. The added amount is
merely part of the purchase price of the stock.
107 Stock dividends are distributions of a company's earnings to shareholders in the form of
additional shares of the same company according to the proportion of shares owned. Stock
dividends are not included in the shareholder's gross income unless the distribution falls
under one of the exceptions. Stock dividends do not change the total value of the
stockholder's stock, instead the basis of each share changes.
108 Exceptions to the general tax -free treatment of stock dividends occur when a stock
dividend results in a change in the proportionate ownership or increases a shareholder's
interest in the assets or earnings and profits of the corporation. When an exception applies,
the stock dividend must be recognized as income at the fair market value of the distributed
stock as of the date of distribution. Stock dividends are generally gross income to
shareholders in the following situations:
a. A distribution in which any s hareholder has the option to receive cash or ot her
property instead of stock in the distributing corporation;
b. Disproportionate distribution of stock;
c. Any distribution of stock which results in some common shareholders receiving
preferred stock and the other common shareholders receiving common stock;
d. Distribution on preferred stock; and
e. Distribution of convertible preferred stock.
109 Dividends paid in securities or other property (other than its own stock) in which the
earnings of a corporation have been invested are income to the recipients at the fair market
value of such property when distributed by the corporation to the shareholder. Scrip
dividends are payments to the company's shareholders in the form of new shares rather
than money. Scrip dividends are subject to tax in the year in which the certificate is issued.
110 If a corporation cancels or redeems its stock at such a time and in such manner as to make
the distribution in whole or in part essentially equivalent to a taxable dividend, the amount
so distributed, to the extent it represents a distribution of earnings and profits, shall be
treated as a taxable dividend.
111 The Commissioner will follow federal rules, regulations and revenue procedures relating to
dividends to the extent that such procedures are not deemed contrary to the context and
intent of Mississippi Law.
112 (Reserved)
35.III.2.06 revised effective January 1, 2021