South Carolina v. Baker (South Carolina v Baker)

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1988 United States Supreme Court case

South Carolina v. Baker, 485 U.S. 505 (1988), was a United States Supreme Court case in which the Court ruled that section 310(b)(1) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) does not violate the Tenth Amendment to the United States Constitution .

Background

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TEFRA continued the federal tax exemption for state bond interest as long as the bond is registered, with each seller and buyer being recorded for audit purposes. Anonymous bearer bonds , which often were used in money laundering , were no longer exempt, however. South Carolina sued to have the federal tax advantage restored for all their bonds.

Decision

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The US Supreme Court also ruled that a nondiscriminatory federal tax on the interest earned on state bonds does not violate the intergovernmental tax immunity doctrine, which permitted the federal taxation of interest income on bonds issued by state governments in the United States . The Supreme Court stated that the contrary decision of the Court in the case of _Pollock v. Farmers' Loan & Trust Co. _ (1895) had been "effectively overruled by subsequent case law."

Sources

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Trujillo, P. A. (1988). "Municipal Bond Financing after South Carolina v. Baker and the Tax Reform Act of 1986: Can State Sovereignty Reemerge". Tax Lawyer. 42: 147. ISSN 0040-005X .
Wyatt, Terrence M.; Sparkman, William E. (1988). "The United States Congress Can Tax Interest on State Bonds: South Carolina v. Baker". West's Education Law Reporter. 48 (1): 1–6. ISSN 0744-8716 .