Municipal Bond Forum
On “Kentucky court says state can’t tax interest on out-of-state bonds”
Q
What effect do you think this will have on bond yields if all states passed a similar law?
A
James A. Klotz responds:
Most legal experts do not expect this decision to be upheld by the Kentucky Supreme Court. However, for many other states, the political and economic ramifications could be enormous.
It is clear that the higher tax states would experience a significant loss of revenue and a major increase in borrowing costs. Theoretically, it would also create a more “level playing field” by reducing the value of bonds from high tax states and enhancing the value of bonds issued in states with lower or no income taxes.
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