Quarterly Commentary
June 30, 2011
A new tax seldom generates such scant media attention as the one Indiana legislators recently passed on out-of-state municipal bond interest. Nonetheless, Indiana residents and corporations now have yet another new tax burden thanks to their elected officials. The new tax takes effect on January 1, 2012. From that date forward, the interest on otherwise federally tax-exempt bonds issued by states or municipalities outside of Indiana will be subject to Indiana state and county income tax. Municipal bonds purchased prior to this effective date will be “grandfathered,” thereby avoiding the new levy.
While this is a new type of tax for Indiana residents, it is not new to the investment team at Goelzer Investment Management. It turns out that among states that have an income tax, Indiana is the last to apply it to interest from out-of-state municipal bonds. For our many clients who reside outside of Indiana, we have for years managed municipal bond portfolios subject to such taxation.