Friday, September 21, 2007
Ethan Yale (Georgetown) & Brian Galle (Florida State) have posted their forthcoming article, Can Discriminatory State Taxation of Municipal Bonds Be Justified? Thoughts on the Davis Topside Briefs, 116 Tax Notes ___ (2007), on SSRN. Here is the abstract:
This Report continues our analysis of Department of Revenue of Kentucky v. Davis, a case scheduled for argument in the upcoming 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.