Point & Counterpoint: The Constitutionality of Tax Exemptions for Home State Bonds Under the Dormant Commerce Clause

Abstract:     
The state exemption from taxation of interest on municipal and local home-state bonds when other states' bond interest is subject to tax creates a difficult issue for dormant Commerce Clause analysis. Two state courts have considered the extraterritorial bond taxation issue and have come to opposite conclusions regarding its constitutionality. This Point examines the arguments presented by the two cases and by various commentators, including concerns about the vagueness of the dormant Commerce Clause discrimination concept, the difficulty of applying the market participant exception in this context, and the changes in the global financial markets. It suggests that the home state exemption, while perhaps misguided, should be permitted under a contemporary view of federalism and the relations among the states.

Number of Pages in PDF File: 6

Keywords: municiple bonds, dormant Commerce Clause, market participant, federalism

working papers series