§3124 — Title 31 Money and Finance | U.S. Code

Summary

Federal government bonds and other U.S. obligations cannot be taxed by a state or its local governments when the tax would count the bond or its interest in computing a tax. Two exceptions are allowed: a nondiscriminatory franchise tax (or a similar non-property tax) on a corporation, and estate or inheritance taxes. How interest, dividends, earnings, and gains or losses on those obligations are taxed is decided under the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.). If the Federal Housing Administration agreed before March 1, 1941, to issue an obligation later, that obligation keeps the tax rules in place when the contract was made. The rule does not cover obligations issued by the District of Columbia, U.S. territories or possessions, or their agencies or local units.

Title 31, §3124

Money and Finance — Source: USLM XML via OLRC

(a)Stocks and obligations 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, except—

(1)a nondiscriminatory franchise tax or another nonproperty tax instead of a franchise tax, imposed on a corporation; and

(2)an estate or inheritance tax.

(b)The tax status of interest on obligations and dividends, earnings, or other income from evidences of ownership issued by the Government or an agency and the tax treatment of gain and loss from the disposition of those obligations and evidences of ownership is decided under the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.). An obligation that the Federal Housing Administration had agreed, under a contract made before March 1, 1941, to issue at a future date, has the tax exemption privileges provided by the authorizing law at the time of the contract. This subsection does not apply to obligations and evidences of ownership issued by the District of Columbia, a territory or possession of the United States, or a department, agency, instrumentality, or political subdivision of the District, territory, or possession.

Notes & Related Subsidiaries

Historical and Revision Notes

Revised SectionSource (U.S. Code)Source (Statutes at Large) 3124(a)31:742.R.S. § 3701; Sept. 22, 1959, Pub. L. 86–346, § 105(a), 73 Stat. 622. 3124(b)31:742a.Feb. 19, 1941, ch. 7, § 4, 55 Stat. 9; Mar. 28, 1942, ch. 205, § 6, 56 Stat. 190; restated June 25, 1947, ch. 147, 61 Stat. 180; Sept. 22, 1959, Pub. L. 86–346, § 202, 73 Stat. 624. In subsection (a), before clause (1), the words “Except as otherwise provided by law, all . . . bonds, Treasury notes, and other” are omitted as surplus. The words “political subdivision of a State” are substituted for “municipal or local authority” for clarity and consistency. The word “applies” is substituted for “extends” for clarity. The words “directly or indirectly” are omitted as surplus. In clause (1), the word “instead” is substituted for “in lieu” for clarity. In subsection (b), the words “shares, certificates, stock, or other” and “sale or other” are omitted as surplus. The words “The tax status of . . . and the tax treatment of . . . is decided under the Internal Revenue Code of 1954 (26 U.S.C. 1 et seq.)” are substituted for “shall not have any exemption, as such . . . shall not have any special treatment, as such, except as provided under the Internal Revenue Code of 1954” for clarity. The words “on or after March 28, 1942” and 31:742a(a)(1st sentence words after semicolon related to the United States Maritime Commission) are omitted as executed. The last sentence is substituted for 31:742a(a)(last sentence) for clarity. The words “any political subdivision thereof” are omitted as included in “agency or instrumentality”. The text of 31:742a(b) and (c) is omitted as unnecessary.

Editorial Notes

Amendments

1986—Subsec. (b). Pub. L. 99–514 substituted “Internal Revenue Code of 1986” for “Internal Revenue Code of 1954”.

§3124 Exemption from taxation