Little known to even practitioners in the industry-such as mutual fund managers-is that mutual fund companies and exchange-traded fund issuers actually have to pay taxes in each state where they have investors.

The investors pay, on their gains. But so do fund companies, which have to show how they are calculating the returns they have earned on the investments they make and are apportioning them by state, in relation to the portions of the funds held by investors in each state.

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