Legal News

In Big Tax Ruling, Supremes Uphold Kentucky?s Muni-Bonds Scheme

By Ashby Jones

This just in: In one of the most highly awaited tax cases to hit the Supreme Court in years, the justices have upheld longstanding state tax exemptions for municipal bonds. Here’s the opinion as well as an early story from the WSJ. Click here for background on the case from Scotusblog, and here and here for previous LB posts on the case.

In a 7-2 ruling authored by Justice David Souter, the justices permitted states to exempt interest on their own bonds from taxation while taxing residents for interest on bonds issued by other states. Challengers had maintained that Kentucky’s scheme had violated the Constitution’s Commerce Clause.

In the $2.5 trillion municipal bond market, 42 states exempt some or all interest on their bonds from income taxes, while taxing interest on bonds from other states.

The states have said that throwing out the system of exemptions that began 90 years ago would have a devastating impact on state finances. Industry groups warned of possible turmoil in the municipal bond market if the existing setup were dismantled.

Full post as published by Law Blog - WSJ.com on May 19, 2008 (boomark / email).