Muni bond tax discrimination is preserved

For decades the states have practiced income tax discrimination. They have exempted from tax the interest from in-state bonds, while taxing in full the interest from out-of-state debt obligations. The Kentucky Supreme Court held that such action violates the Commerce Clause of the U.S. Constitution, but by 7-2 the U.S. Supreme Court found that it passes muster. Liberals and conservatives joined in a multifaceted opinion, with Justices Kennedy and Alito in dissent. The tax exemption for private activity bonds was not before the Court, so the decision expressly does not apply to it.

For a more detailed analysis of the case and its consequences, see TaxProf Blog: U.S. Supreme Court Upholds Discriminatory Taxation of Municipal Bonds