Utah Taxation of Municipal Bond Interest

Utah Code ยง59-10-114(1)(e) and Rule R865-9I-50

Interest from certain bonds, notes, and other evidences of indebtedness issued by non-federal government entities outside Utah (commonly known as municipal bonds) are subject to Utah income tax if acquired on or after January 1, 2003. However, interest earned on non-Utah municipal bonds is not subject to Utah income tax if the issuing state (or political subdivision) does not impose an income tax on bonds issued by Utah, or the issuing state does not impose an income tax.

A non-federal government entity, for this purpose, is defined as:

  • a state (other than Utah);
  • the District of Columbia;
  • a political subdivision of a state (other than Utah);
  • Puerto Rico, Guam or Virgin Islands (if bonds issued by the federal government); or
  • an agency or instrumentality of one of these entities.

Enter the taxable amount on Utah form TC-40A, Part 1, using code 57.

Keep all documentation with your tax records.

Reciprocity List

The following states and political subdivisions do not impose an income tax on Utah municipal bonds. Accordingly, interest earned on bonds, notes, etc. issued by one of these jurisdictions is not subject to Utah income tax. If you believe a jurisdiction qualifies for the reciprocity exception and is not listed, please contact us at 801-297-7705, or if outside the Salt Lake area, call 1-800-662-4335 extension 7705.

  • Alaska
  • District of Columbia
  • Florida
  • Indiana (for bonds acquired before January 1, 2012)
  • Nevada
  • North Dakota (municipal bonds are exempt from state tax under the piggyback method of tax preparation used by approximately 90% of residents)
  • South Dakota
  • Texas
  • Washington
  • Wyoming

Treatment of Expenses

Fiduciary fees and other investment expenses associated with municipal bonds are not deductible from Utah income.

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