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Can Discriminatory State Taxation of Municipal Bonds Be Justified?
Brian D. Galle Florida State University College of Law; GWU Law School Ethan Yale Georgetown University Law Center; University of Virginia - School of Law Tax Notes, Vol. 117, No. 2, October 8, 2007 FSU College of Law, Public Law Research Paper No. 276 FSU College of Law, Law and Economics Paper No. 07-17 Georgetown Public Law Research Paper No. 1014138 State Tax Notes, Vol. 46, No. 3, October 22, 2007 Abstract: This Report continues our analysis of Department of Revenue of Kentucky v. Davis, a case argued in the 2007-2008 Supreme Court term. The issue in Davis is the constitutionality of Kentucky's practice (shared by all other states with an income tax) of taxing interest on federally-exempt bonds issued outside Kentucky while exempting its own municipal bonds from taxation. In this installment we evaluate skeptically a number of possible state interests that might be offered to justify that practice. For example, we point out that Kentucky's assertion that the policy conserves state revenue is wrong. We also argue that, if the goal is to transfer revenues from the state to local governments, then exemption is inferior to direct grants.
Keywords: Dormant Commerce Clause, municipal bonds, fiscal federalism, Pike Accepted Paper SeriesDate posted: September 13, 2007 ; Last revised: November 04, 2009Suggested CitationContact Information
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