The Supreme Court said it will hear a case in its next term this fall that could drastically impact both the municipal bond market and 529 college savings plans, law.com reports. At issue is whether states can exempt municipal bonds issued in their own state from taxes yet levy taxes on municipal bonds issued by other states.
A Kentucky court ruled last year that taxing municipal bonds issued by other states is in violation of the anti-discriminatory provisions for out-of-state commerce outlined in the Constitution.
“The outcome has broad implications for the municipal bond market at large, far beyond Kentucky’s borders,” said the state’s Secretary of Commerce John R. Farris.
Yet, based on a case concerning local governments in New York that the Supreme Court heard in which it ruled in their favor, some legal experts expect it will overturn Kentucky’s decision and allow states to continue to exempt their own municipal bonds from taxes.