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Taxing out-of-state bonds
Q
In your reply to the e-mail below, Residency and interest, you state: “Any state with an income tax will tax the interest on ‘out-of-state’ bonds. Naturally, states without income taxes don’t tax bond interest of any kind.” Your answer is not entirely accurate. New Hampshire doesn’t have a personal income tax, but it does tax the interest earned on municipal bonds from other states (but not on New Hampshire muni bonds). This may hold true for other states that do not tax earned income but do levy a tax on residents who earn interest from out-of-state muni bonds.
A
James A. Klotz responds:
Thank you for the clarification. You are absolutely correct. Although New Hampshire does not have an “earned income” tax, it does tax residents on income from out-of-state bonds. The same holds true for Tennessee.
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