Court Cases

It appears only two cases have addressed whether state laws taxing interest earned on bonds issued by other states while exempting interest earned on bonds issued by that state violate the Commerce Clause. Dep't of Revenue of Kentucky v. Davis

In the Davis case, the Kentucky court of appeals held that the state's bond taxing scheme violated the Commerce Clause. The U.S. Supreme Court heard oral arguments in the Davis case on November 5, 2007.
Most states exempt from state income taxes the interest earned on bonds issued by that particular state and its political subdivisions, while taxing the interest earned on bonds issued by other states and their political subdivisions. Some argue that these state tax schemes violate the Commerce Clause by discriminating against out-of-state bonds. Courts in two states have examined this issue. On November 5, 2007, the U.S. Supreme Court heard oral arguments in one of these cases, Department of Revenue of Kentucky v. Davis.