The selective income tax exemption for home-state municipal bonds at issue in Davis v. Kentucky Department of Revenue is a barrier to interstate commerce.
Abstract
This report argues that the selective municipal bond exemption challenged in Davis functions as an import tariff in the municipal bond market by favoring within-state holdings of municipal bonds over interstate holdings. Observation confirms that the selective exemption has balkanized the municipal bond market and harmed investors. The recognized exceptions to the dormant commerce clause of the Constitution should not be extended to uphold the selective exemption.
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Alan D. Viard is a resident scholar at AEI.
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