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U.S. Supreme Court rules against taxpayers in municipal bond case

Monday, May 19, 2008

U.S. Supreme Court rules against taxpayers in municipal bond case

The U.S. Supreme Court has issued a ruling permitting states to exempt interest on their own bonds from taxation, while taxing residents for interest on bonds issued by other states. (Dept. of Revenue of Kentucky v. Davis (May 19, 2008) ____ US ____, Case No. 06-666).

This decision overturns the Kentucky Court of Appeals decision that held a statute unconstitutionally violated the commerce clause, because it taxes interest earned on bonds issued by other states and their political subdivisions, while exempting interest earned on Kentucky bonds.

The U.S. Supreme Court decision means that taxpayers who filed protective claims based on the Kentucky case will not be entitled to refunds.

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