* See Institute Memorandum to Accounting/Treasurers Members No. 8-94,
Closed-End Fund Members No. 7-94, Members - One Per Complex No. 17-94 and Tax
Members No. 8-94, dated March 9, 1994.
June 17, 1994
TO: BOARD OF GOVERNORS NO. 53-94
ACCOUNTING/TREASURERS COMMITTEE NO. 32-94
CLOSED-END FUND COMMITTEE NO. 16-94
TAX MEMBERS NO. 27-94
RE: INSTITUTE SUPREME COURT BRIEF ON STATE TAXATION OF REPOS
__________________________________________________________
In March, the U.S. Supreme Court granted certiorari in a
Nebraska case involving the state taxation of repurchase
agreements ("repos") backed by U.S. Government obligations,
Loewenstein v. State, 504 N.W. 2d 800 (Neb. 1993), cert. granted,
114 S. Ct. 1215 (March 7, 1994).* The taxpayer in the case is a
mutual fund shareholder who received dividends derived in part
from repo investments.
In earlier proceedings, the State of Nebraska had conceded
that federal law prohibits the taxation of fund dividends derived
from federal obligation interest. Thus, the issue of state
taxation of fund dividends was not presented in the case before
the Court. Nevertheless, a brief filed by the State of
California and joined by many other states argues that federal
law does not prohibit the state taxation of fund dividends
derived from federal obligations. These states urge the Court to
address this issue.
The Institute filed the attached brief as amicus curiae in
support of the taxpayer. The brief makes the following argument:
1) the state taxation of fund dividends derived from
federal obligation interest is an issue not before the
Court and, therefore, California's arguments should be
rejected;
2) if the mutual fund issue were presented, the Court
would be compelled to hold that states are prohibited
from taxing fund dividends attributable to federal
obligation interest; and
3) Nebraska's attempt to tax income arising from
repurchase agreements on federal obligations violates
federal law.
This case is scheduled for argument during the Court's
October 1994 term. Consequently, it is likely that oral argument
will occur in late 1994, with a decision rendered by June 1995.
We will keep you informed of developments.
Catherine L. Heron
Vice President and Senior Counsel
Attachment