November 16, 1989
TO: MONEY MARKET FUND CHIEF EXECUTIVE OFFICERS NO. 10-89
TAX MEMBERS NO. 43-89
RE: KENTUCKY PASS-THROUGH OF MUNICIPAL BOND INTEREST
__________________________________________________________
As we previously informed you, Kentucky recently revised
its Revenue Policy Statement 42P161 to exempt from Kentucky
income tax those dividends paid by a regulated investment company
("RIC") attributable to interest derived from federal
obligations. (See Institute Memorandum to Money Market Fund
Chief Executive Officers No. 8-89 and Tax Members No. 36-89,
dated October 6, 1989). This revision also changed the tax
treatment of RIC dividends derived from some state and local
obligations. Prior to the revision, RIC dividends attributable
to interest derived from all state and local obligations were
exempt from Kentucky income tax. Pursuant to the revision, RIC
dividends attributable to non-Kentucky state and local
obligations would no longer be exempt from Kentucky income tax.
The attached letter to the Institute from the Kentucky
Revenue Cabinet clarifies that the change in treatment for
non-Kentucky state and local obligations will commence with
taxable years beginning after December 31, 1989. Thus, for 1989,
all RIC dividends attributable to federal obligations and state
and local obligations of any state will be exempt from Kentucky
income tax. Thereafter, only RIC dividends attributable to
federal obligations and Kentucky state and local obligations will
be exempt from Kentucky income tax.
We will keep you informed of developments.
Keith D. Lawson
Assistant General Counsel
Attachment