Muni Bonds and the Commerce Clause After United Haulers
University of Virginia School of Law
Brian D. Galle
Georgetown University Law Center
Tax Notes, Vol. 115, June 11, 2007
State Tax Notes, Vol. 44, No. 12, June 18, 2007
Georgetown Public Law Research Paper No. 987511
FSU College of Law, Public Law Research Paper No. 256
This Report considers the constitutionality of the common state practice of exempting interest on the state's own municipal bonds from taxation but imposing tax on municipal bonds issued in other states. In particular, we weigh the impact of a recent Supreme Court decision, United Haulers, on challenges to those statutes, including one suit, Davis v. Kentucky, in which a petition for certiorari was recently granted.
In United Haulers the Court held that a municipal ordinance didn't violate the Dormant Commerce Clause because the ordinance operated as a preference for a government-owned facility. United Haulers might save from constitutional invalidity state tax laws favoring in-state municipal bonds, but we doubt it. Although United Haulers lifts the presumption of unconstitutionality from laws favoring state-run businesses in competition with private business, we argue that the Court should remain skeptical of discriminatory laws that shield state officials from the pressure of competition with activities undertaken by other states. We predict that, if constitutional law remains as it stands, state laws exempting only in-state municipal bonds will be found to violate the Dormant Commerce Clause. If we are wrong and state tax laws favoring in-state municipal bonds are shielded by United Haulers, it will mark a significant extension of the nascent state-run business exception to the Dormant Commerce Clause.
Number of Pages in PDF File: 11
Keywords: dormant commerce clause, municipal bonds, market participation, state and local tax
Date posted: May 21, 2007