06/25/2007 Council Packet - Laserfiche WebLink

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Minnesota Tax Exemption The 1995 Minnesota Legislature enacted a law that includes interest on obligations of Minnesota governmental units and Indian tribes in net income of individuals, estates and trusts for Minnesota income tax purposes if a court determines that Minnesota's exemption of such interest unlawfully discriminates against interstate commerce because interest on obligations of governmental issuers located in other states is not excluded. This law applies to taxable years that begin during or after the calendar year in which any such court decision becomes final, irrespective of the date on which the obligations were issued. The Court of the Appeals of Kentucky recently held unconstitutional Kentucky's taxation system that exempts from "net income" the interest on bonds issued by Kentucky or its subdivisions while including in "net income" the interest on bonds issued by other states or their subdivisions. In 1994, the Ohio Court of Appeals reached the opposite conclusion on this legal issue, determining that the Ohio exemption does not violate the Commerce Clause of the United States Constitution. On May 21, 2007, the United States Supreme Court agreed to consider the appeal of the Kentucky case during its 2007 Term. If the United States Supreme Court were to uphold the decision of the Court of Appeals of Kentucky, the Minnesota law that requires the inclusion of interest on bonds issued by Minnesota governmental units and Indian tribes in State of Minnesota income tax may become effective. The above is not a comprehensive list of all federal tax consequences which may arise from the receipt of interest on the Bonds. The receipt of interest on the Bonds may otherwise affect the federal or State income tax liability of the recipient based on the particular taxes to which the recipient is subject and the particular tax status of other items or deductions. Bond Counsel expresses no opinion regarding any such consequences. All prospective purchasers of the Bonds are advised to consult their own tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Bonds. QUALIFIED TAX- EXEMPT OBLIGATIONS The City will designate the Bonds as "qualified tax - exempt obligations" for purposes of Section 265(b)(3) of the Code relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax - exempt obligations. RATING An application for a rating of the Bonds has been made to Moody's Investors Service ( "Moody's "), 99 Church Street, New York, New York. If a rating is assigned, it will reflect only the opinion of Moody's. Any explanation of the significance of the rating may be obtained only from Moody's. There is no assurance that a rating, if assigned, will continue for any given period of time, or that such rating will not be revised or withdrawn if, in the judgment of Moody's, circumstances so warrant. A revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. 6