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Edison's tax prepayments, but instead was exercising its power to
tax").
As discussed in Hernandez I, Florida tax certificates are
sold at auction to the bidder who will pay the outstanding taxes,
interest, costs, and other charges and is willing to accept the
lowest rate of interest. The issuer, Pasco County in the case at
hand, has no stake in the outcome of such an auction, other than
seeing to it that all tax certificates are sold, as in every case
in which a certificate is sold the issuer will receive payment in
full up front at the time of sale. The auction process
determines the rate of interest to be paid by the delinquent
property owner to redeem the certificate. The system so
described above is consistent with our characterization of the
sale of a Florida tax certificate as a collection activity in
exercise of the issuer's sovereign taxing power.
As pointed out in Hernandez I, the requirement that an
obligation be issued in exercise of sovereign borrowing power in
order to qualify as a section 103(c)(1) obligation "derives from
the notion that the purpose of the section 103 exclusion is to
enable States and localities to obtain capital at lower than
market rates of interest". In the municipal bond market, "the
exclusion causes purchasers of tax-exempt bonds to accept
interest at lower rates equal to the lower after-tax rates of
interest earned by holders of taxable bonds of equivalent risk."
Hernandez v. Commissioner, T.C. Memo. 1998-46. But the market
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