The U.S. Supreme Court has ruled in a Kentucky case that states can continue the longstanding practice of offering tax exemptions on interest from their own municipal bonds.
In a 7 to 2 decision issued Monday, justices said those governments can also tax citizens for interest earned from bonds issued by other states.
Attorney Christopher Trower argued the case on behalf of the Kentucky Revenue Cabinet. He says if the court had ruled the other way, many states faced the prospect of refunding hundreds of millions of dollars in tax revenue.
“Seven states don’t have an income tax at all. but they supported Kentucky’s position nonetheless. Forty-three other states do have an income tax, and 42 out of those 43 have exemptions, just like Kentucky. Every state supported Kentucky, but not every state has an income tax,” Trower said.
The ruling came in a case brought by George and Catherine Davis of Jefferson County, who challenged the taxes they were forced to pay on municipal bonds from other states.