Client Alert

Supreme Court to Review Municipal Bond Case

May 24, 2007

Joseph P. Opich and Matt Walding

The U.S. Supreme Court has granted review in a case involving the disparate treatment under Kentucky income tax law of interest derived from in-state and out-of-state bonds. In Kentucky Department of Revenue v. Davis,  the Court will consider whether a state violates the dormant Commerce Clause of the U.S. Constitution by providing an exemption from its income tax for interest income derived from bonds issued by the state and its political subdivisions, while treating interest income realized from bonds issued by other states and their political subdivisions as subject to the state’s income tax. Under the dormant Commerce Clause doctrine, a state is prohibited from improperly burdening or discriminating against interstate commerce.

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