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Subject Author Date
State taxation of out of state bonds Drew Edmundson 02-21-2007
Posted by Drew Edmundson on February 21, 2007, 6:48 pm
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> From the Wall Street Journal, online edition:

The U.S. Supreme Court was expected to announce yesterday
whether it would agree to hear an appeal by the state of
Kentucky. But it didn't. The issue in the case is whether
Kentucky can tax interest received by a Kentucky couple on
their out-of-state bonds while exempting interest on
in-state bonds. Many states have similar laws.

The court is expected to announce soon whether it will take
the case. -------

I wonder why it has taken so long for one of these cases to
make it to the Supreme Court. Now if they will only take
it.

--
Drew Edmundson, CPA
Cary, NC

Moderator:
My money says Johnny and the Supremes take the case and
Kentucky loses!

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Posted by Shyster1040 on February 22, 2007, 5:45 pm
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> I wonder why it has taken so long for one of these cases
> to make it to the Supreme Court. Now if they will only
> take it.""

Because the Supreme Court dislikes taking tax cases;
they're not very good at them, and have been badly burned in
the past - see, e.g., Pollock v. Farmers Loan and Trust Co.,
as well as the "respect" that case got in later cases, e.g.,
Brushaber.

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Posted by Geoff on February 23, 2007, 6:50 am
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>> From the Wall Street Journal, online edition:

> The U.S. Supreme Court was expected to announce yesterday
> whether it would agree to hear an appeal by the state of
> Kentucky. But it didn't. The issue in the case is whether
> Kentucky can tax interest received by a Kentucky couple on
> their out-of-state bonds while exempting interest on
> in-state bonds. Many states have similar laws.
>
> The court is expected to announce soon whether it will take
> the case. -------
>
> I wonder why it has taken so long for one of these cases to
> make it to the Supreme Court. Now if they will only take
> it.

What is the reasoning here? Why shouldn't a state be
allowed to tax what it wants? Isn't it reasonable for a
state to encourage the sale of it's bonds?

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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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Posted by Shyster1040 on February 25, 2007, 12:40 am
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> What is the reasoning here? Why shouldn't a state be
> allowed to tax what it wants? Isn't it reasonable for a
> state to encourage the sale of it's bonds?

Without having read any of the briefs, I believe that the
basic argument is that, by taxing the income derived from
out-of-state bonds but not the income derived from in-state
bonds, the state in question is interfering with interstate
commerce because, by providing a more favorable treatment to
interest earned on in-state bonds, it is in effect
discouraging its residents from investing their money in
out-of-state bonds, thereby interfering with the interstate
movement of investment capital.

For example, a state generally cannot impose a tax on
widgets manufactured out-of-state that are brought into the
state but exempt widgets that are manufactured in-state and
kept in the state.

There are, of course, other issues involved that make the
case difficult, such as the sovereignity of the state, the
issuance of the bonds in support of that sovereignity, and
the degree to which the Constitution cut that sovereignity
down.

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by granny44 on February 25, 2007, 12:40 am
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>> From the Wall Street Journal, online edition:
>> The U.S. Supreme Court was expected to announce yesterday
>> whether it would agree to hear an appeal by the state of
>> Kentucky. But it didn't. The issue in the case is whether
>> Kentucky can tax interest received by a Kentucky couple on
>> their out-of-state bonds while exempting interest on
>> in-state bonds. Many states have similar laws.
>>
>> The court is expected to announce soon whether it will take
>> the case. -------
>>
>> I wonder why it has taken so long for one of these cases to
>> make it to the Supreme Court. Now if they will only take
>> it.

> What is the reasoning here? Why shouldn't a state be
> allowed to tax what it wants? Isn't it reasonable for a
> state to encourage the sale of it's bonds?

There is a precedent for the Kentucky couple's position in
the realm of diidends. The state of Arizona was not taxing
dividends from in state corporations but was taxing
dividends from out of state corporations. Helen Ladewig
brought suit [which was later changed to a class action
suit] against the state of Arizona. After many years of
litigation, the class action plaintiffs prevailed and the
state of Arizona had to repay dividend-receiving taxpayers a
tax refund plus interest for the years 1986-1989. The
interest paid exceeded the tax collected on the dividends
because the case took so long to exhaust all appeals; in
fact Ladewig had passed away and the case was litigated by
her estate. The case was finally won on the basis of equal
protection.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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