Muni-Bonds-Taxing the Interest, Katie bar the door.

Implications: Could this type of taxing plan on Muni bonds by the States be considered some sort of restriction on free trade? If allowed, will many States follow suit and many businesses move from one State to another?   

Analysis: Not surprisingly, it appears other states will be following Kentucky's logic on possibly taxing the interest on out of state muni bonds. North Carolina recently allowed class action status in a somewhat parallel case.  The US Supreme Court will hopefully finally resolve this issue by mid summer.  The arguments in the transcripts following the article in the Investment News certainly spin an interesting perspective on this issue.  Are State's just looking for another form of revenue or is it that they want to encourage purchase of bonds from local avenues?  To some extent, this issue seems to only one logical conclusion.  If in weighting the the financial implications and favorable aspects of municipal securities you are able to choose between tax free and tax exempt, assuming all other factors remain equal,  your choice is obvious. www.investopedia.com/articles/04/072804.asp The question becomes is do you want to allow your State to be hedging your selection?