Is the interest payable on BABs exempt from State taxation?
The Act is drafted to maximize the likelihood that States that exempt interest from State income taxation based on a federal exemption would treat BABs as tax-exempt for State law purposes. The Act does allow the States to specifically overrule this position. Therefore, there may be some uncertainty as to State law treatment of the interest on the BABs. Are BABs authorized under State law? BABs provide a new structure for bonds which, as always, the borrower must have the independent power to issue for particular purposes under State law. BABs are bonds similar to other interest bearing bonds and should be able to comply with State law. However, some legislative amendments may be necessary in order to properly receive and apply the tax credits payable to the issuer of Issuer BABs. What remains to be clarified regarding BABs? There remain several open issues affecting the issuance and effect of BABs, some of which will require Federal or State guidance or possibly legislative changes. T
