SC municipal bond interest to remain tax-exempt

Individuals who buy municipal bonds used to finance state and local government projects can enjoy state tax exemptions on interest earned from those investments, but will continue to be taxed on bonds issued by other states.

The U.S. Supreme Court on Monday upheld a long-standing practice whereby 42 states, including South Carolina, can exempt interest on their own bonds from taxation while taxing residents for interest on bonds issued by other states.

The 7-2 ruling not only preserved the 90-year-old $2.5 trillion municipal bond market, but avoided a potential meltdown of local and state finances had the existing setup been dismantled, industry experts said.

In the case before the court, taxpayers George and Catherine Davis of Jefferson County, Ky., challenged Kentucky law because it required the couple to pay income tax on bonds they held from other states.

The Davises said Kentucky law violates the commerce clause of the U.S. Constitution giving Congress authority to regulate commerce among the states. It is well-established in the courts that the commerce clause prohibits states from discriminating against interstate trade.

Read more in Tuesday's edition of The Post and Courier.