Also known as: municipal bond · muni bond · muni bonds · munis · municipal securities
Written by attorneys · grounded in primary & secondary sources — see below
Debt securities issued by a state or local governmental entity to finance public projects. The interest paid on these securities is excluded from gross income under federal tax law.
Select any source to read its text and confirm it supports the definition.
Judge Miles Montgomery holds municipal bonds issued by the City of Metropolis while presiding over a contract dispute in which the city is a defendant. The bonds continue to pay interest during the litigation. The judicial conduct commission imposes discipline because the ongoing financial interest creates an appearance of impropriety.
Marco Marquez, a non-property owner, is barred by state law from voting in a referendum on whether the city may issue new municipal bonds to fund a utility plant. He sues, claiming the restriction violates equal protection. The court strikes down the limitation because the benefits and burdens of the bond issue affect all residents equally.
Metro Bank holds municipal bonds secured by special assessments on real property. A state statute extends the redemption period for mortgaged land during an economic emergency. The bank challenges the law as impairing its contract rights. The court upholds the statute because the temporary relief serves a legitimate public purpose without destroying the bondholders' ultimate security.
Michelle Murphy receives interest from municipal bonds and reports it on her federal return. Congress enacts an income tax that reaches this interest. She sues, arguing the tax is a direct tax on the bonds themselves. The court rejects the claim because the levy is on net income, not on the bonds as property.
Majestic Construction challenges a county ordinance that requires all solid-waste haulers to deliver waste to a publicly financed facility supported by municipal bond revenue. The company claims the rule discriminates against interstate commerce. The court upholds the ordinance because the facility is owned and operated by a public authority and the restriction serves a legitimate local purpose.
Madison Meyers, a shareholder of Mirage Hotels, sues the board for retaining earnings to purchase additional municipal bonds rather than declaring dividends. She argues the policy harms shareholders. The court dismisses the claim because directors may lawfully accumulate reserves in tax-advantaged securities when they reasonably believe it benefits the corporation's long-term stability.
The exclusion under section 103 allows municipalities to borrow at lower interest rates because the tax benefit flows to the bondholder. This congressional policy subsidizes state and local infrastructure without direct federal grants.
Supporting sources
Discipline may be imposed when a judge owns or continues to acquire bonds of a city that is a party before the court. The financial interest creates an appearance of impropriety even if the judge did not participate in the specific ruling affecting the city's obligations.
Supporting sources
…on the basis of Kolodziejski. Parish School Board of St. Charles v. Stewart, post , p. 884, where Louisiana gave a vote on municipal bond issues only to "property taxpayers." The powers granted Congress by § 5 of the Fourteenth Amendment to "enforce" the Equal Protection Clause are "the same broad powers expressed in the…