In George & Catherine Dosis v. Kentucky Department of Revenue et al, the Kentucky Court of Appeals held that the system where a state income tax was imposed upon all municipal bonds, except for federal bonds and bonds issued by Kentucky, was unconstitutional and unjust. CPAs and other tax advisers have used this tax-exempt characteristic to assist clients and have encouraged taxpayer investors to place investment dollars in special "tax-exempt" funds. CPAs and other tax planners also rely heavily upon using municipal bonds for tax advice and strategies regarding estate planning. If the Davis case is left standing, other states may be forced to compete in some manner by exempting or lowering that tax rate on interest income from other bonds. To compete they may need to amend their tax laws to preserve the home state's financial resources and avoid permanently allowing Kentucky to become a municipal bond "tax haven" state.
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