128
Opinion of the Court
Courts of Appeals have ruled that interest income derived from repos involving municipal bonds is not exempt from federal taxation under § 103(a)(1) of the Internal Revenue Code.3 We granted certiorari to resolve this conflict, 510 U. S. 1176 (1994), and we now reverse.
II
We begin with the text of 31 U. S. C. § 3124(a). It provides in relevant part:
"[O]bligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax . . . ."
Under this provision, a state tax may consider neither the federal "obligation" itself nor the "interest on the obligation." The obligation itself is "considered" when its value is "taken into account, or included in the accounting," Ameri-A. 2d 192 (1990); Borg v. Department of Revenue of Oregon, 308 Ore. 34, 774 P. 2d 1099 (1989); Massman Constr. Co. v. Director of Revenue of Missouri, 765 S. W. 2d 592 (Mo. 1989); In re Sawyer Estate, 149 Vt. 541, 546 A. 2d 784 (1987). Accord, H. J. Heinz Co. v. Department of Treasury, 197 Mich. App. 210, 494 N. W. 2d 850 (1992) (distinguishing Matz v. Department of Treasury, 155 Mich. App. 778, 401 N. W. 2d 62 (1986) (per curiam)).
3 See Union Planters Nat. Bank of Memphis v. United States, 426 F. 2d 115 (CA6), cert. denied, 400 U. S. 827 (1970); American Nat. Bank of Austin v. United States, 421 F. 2d 442 (CA5), cert. denied, 400 U. S. 819 (1970). Accord, First American Nat. Bank of Nashville v. United States, 467 F. 2d 1098 (CA6 1972) (per curiam). Cf. Citizens Nat. Bank of Waco v. United States, 213 Ct. Cl. 236, 248-251, 551 F. 2d 832, 839-840 (1977) (agreeing that these decisions were correct, but distinguishing them on the facts of the case).
The Internal Revenue Service also has concluded that a taxpayer in the position of the Trusts who derives interest income by participating in repurchase agreements does not earn interest on the securities involved in those agreements. See Rev. Rul. 74-27, 1974-1 Cum. Bull. 24; Rev. Rul. 77-59, 1977-1 Cum. Bull. 196; Rev. Rul. 79-108, 1979-1 Cum. Bull. 75.
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