In a special alert we circulated in February, we pointed out that the United States Supreme Court had been asked to hear the case of Kentucky v. Davis, dealing with whether a state that does not impose income tax on its own bonds, and bonds issued by its subdivisions, can nevertheless impose income tax on bonds issued by other states and their subdivisions. The Kentucky Court of Appeals held that this pattern of taxation, followed by most states that impose an income tax, violated the Commerce Clause of the United States Constitution.

The State of Kentucky asked the United States Supreme Court to hear the case, and on May 21, the Supreme Court indicated that it would indeed hear the case. In our February alert, we suggested that individuals with significant interest income from bonds of other states consider filing protective claims for refund. Please refer to that alert for specific information about the applicable statute of limitations for such claims. A copy is available on our website.

We are not optimistic that the result in the Kentucky Court of Appeals will be upheld by this Supreme Court, but nobody knows for sure until the Court hears the case and renders its decision. We will issue another special alert on the Court’s decision as soon as it is announced.