Department of Revenue of Kentucky v. Davis
Encyclopedia
Department of Revenue of Kentucky v. Davis, 553 U.S. 328 (2008) is a decision by the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

 which upheld a Kentucky
Kentucky
The Commonwealth of Kentucky is a state located in the East Central United States of America. As classified by the United States Census Bureau, Kentucky is a Southern state, more specifically in the East South Central region. Kentucky is one of four U.S. states constituted as a commonwealth...

 law that provides a preferential tax break to Kentucky residents who invest in bonds issued by the state and its municipalities (municipal bond
Municipal bond
A municipal bond is a bond issued by a city or other local government, or their agencies. Potential issuers of municipal bonds includes cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and any...

s). The Court held in a 7-2 vote that the State of Kentucky does not engage in unconstitutional discrimination against interstate commerce by exempting the interest on its bonds from residents’ taxable income
Taxable income
Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...

 while taxing the interest earned on the bonds of other states.

The case has national implications because thirty-six (36) states have tax schemes similar to the one at issue in Kentucky.

Background

George and Catherine Davis sued the State of Kentucky under the legal theory that the State of Kentucky violated the Dormant Commerce Clause
Dormant Commerce Clause
The "Dormant" Commerce Clause, also known as the "Negative" Commerce Clause, is a legal doctrine that courts in the United States have inferred from the Commerce Clause in Article I of the United States Constitution...

, a legal implication of the Commerce Clause
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...

, by providing a differential tax treatment to gains earned from investments in municipal bonds from Kentucky versus other states.

External links

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