CF 1992-01 - Exempt federal interest income - January 9, 1992
This information release lists exempt federal interest
income. Taxpayers (corporate and individual) are entitled to
deduct in their computation of "base income"1 such
amounts that would otherwise be taxable but which are exempt
from taxation by this state by reason of the constitution,
treaties, or statutes of the United States. Note: This is not
an all-inclusive list. Taxpayers can deduct other interest
only if they
can establish that such interest is not subject to Ohio
- Interest on Obligations of the United States
Federal statute, 31 U.S.C.A. Section 3124(a), exempts from
state income taxation "stocks and obligations of the United
States Government", as well as "the interest on the
- Interest on U.S. Treasury bonds, notes, bills,
certificates, and saving bonds (example; series E, F, G,
and H Bonds).
- Interest income from GSA Public Building Trust
Participation Certificates: First Series - series A
through E, Second Series - series F, Third Series -
series G and Fourth Series - series H and I.
- Other interest income exempt from state taxation due to
additional federal statutes
The following is a list of interest bearing obligations
whose interest income is exempt from state taxation as a
result of various federal statutes:
- Bank's notes, debentures and other obligations issued for
cooperatives (12 U.S.C.A. section 2134).
- Commodity credit corporation's bonds, notes, debentures,
and other similar obligations (15 Federal Trade
- Farm credit system financial assistance
corporation's (Financial Assistance Corporation)
notes, bonds, debentures, and other similar
obligations (12 U.S.C.A. section 2278b-10).
- Federal Deposit Insurance Corporation's notes, bonds,
debentures or other such obligations (12 U.S.C.A. section
- Federal Farm Credit Banks' consolidated system-wide
notes, bonds, debentures, and other similar obligations (12
U.S.C.A. section 2023).
- Federal Home Loan Banks' notes, bonds, debentures and
other similar obligations or consolidated federal home loan
bonds and debentures (12 U.S.C.A. section 1441).
- Federal Intermediate Credit Bank's notes, bonds,
debentures and other similar obligations (12 U.S.C.A.
sections 2204 and 2023) [Treated as a subclass of Fed. Farm
- Federal Land Banks and Associations' notes, bonds,
debentures or other such obligations (12 U.S.C.A section
- Federal Savings and Loan Insurance Corporations'
notes, bonds, debentures or other such obligations, (12
U.S.C.A. section 1825).
- Financing corporation's (FICO) obligations (12 U.S.C.A.
- General Insurance Fund's (i) debentures issued under the
War Housing Insurance Law (12 U.S.C.A. section 1739(d)) (ii)
debentures issued to acquire rental housing projects (12
U.S.C.A. section 1747g(g)) and (iii) debentures issued under
the Armed Services Housing Mortgage Insurance (12 U.S.C.A.
- National Credit Union Administration Central Liquidity
Facility's notes, bonds, debentures and other similar
obligations (12 U.S.C.A. section 1795k(b)).
- Production Credit Association's notes, debentures, and
other similar obligations (12 U.S.C.A. section 2077).
- Resolution Funding corporation's obligations (12 U.S.C.A.
- Student Loan Marketing Association's obligations (20
U.S.C.A. section 1087-2(b)(2)).
- Tennessee Valley Authority's bonds (16 U.S.C.A. section
- United States Postal Service's obligations (39 U.S.C.A.
- Export-Import Banks of the United States' obligations (12
U.S.C.A. section 635(b)).
- District of Columbia's obligations.
- Farmers Home Corporation's obligations (12 U.S.C.A.
- Federal Farm Loan Corporation's obligations (12 U.S.C.A
- Federal Housing Administration's obligations (12 U.S.C.A.
- Home Owner's Loan Corporation's obligations (12 U.S.C.A.
section 1463 - abolished 1953).
- Joint Stock Land Banks' farm loan bonds and mortgages (12
U.S.C.A. section 2098).
- Maritime Administration's Merchant Marine Bonds (12
- Small Business Administration's obligations (15 U.S.C.A.
- U.S. Housing Authority's obligations (42 U.S.C.A. section
Special Notes to Sections I and II
- Interest income from repurchase agreements involving
exempt federal obligations is not deductible federal
interest income for Ohio tax purposes -- see Associated Estate Corporation
v.Limbach (May 11, 1990), BTA Case No. 87-H-743,
87-G-744 and 87-D-756 and Park Poultry Inc. v.
Limbach (May 3, 1991), BTA Case No. 88-F-205. See
Limbach (August 23, 1991), BTA Case No. 89-F-590.
- Interest income received from the Internal Revenue
Service on a tax refund is not exempt federal
interest for Ohio tax purposes -- see Gerald R. and Judith K. Beck v.
Limbach (Oct. 13, 1989) BTA Case No. 87-G-1163.
- Interest income derived from Government National Mortgage
Association's (Ginnie Mae) securities is not exempt federal
interest for Ohio tax purposes -- see Rockford Life Insurance
Co. v. Department of Revenue,
112 ILL 2d 174, 492 NE 2d 1278 (1986).
- Interest income derived from any of the obligations
listed in sections I and II above owned indirectly through
owning shares in a mutual fund is deductible exempt federal
interest for Ohio tax purposes.
deduction - If the fund invests exclusively in
exempt federal obligations listed in either section I
and/or II, the entire amount of the distribution
(income) from the fund is deductible. If the
fund invests in both exempt and nonexempt obligations,
the amount or percentage of the distribution that the
mutual fund identifies as income derived from
exempt federal obligations is deductible. If the mutual
fund does not identify an exempt amount or percentage,
figure the deduction by multiplying the
distribution by the following fraction: as the numerator,
the amount invested by the fund in exempt U.S.
obligations listed in sections I and II; as the
denominator, the fund's total investment. Use the
year-end amounts to figure the fraction if the
percentage ratio has remained constant throughout the
year. If the percentage ratio has not remained constant,
take the average of the ratios from the fund's quarterly
* * * * *
Tax Information Releases are not "Opinions of the Tax
Commissioner" within the meaning of ORC section 5703.53.
Accordingly, the Tax Commissioner is not bound by this
release. Nevertheless, the above discussion does reflect the
Income Tax Audit Division's interpretation of the
For further assistance please call 614-846-6712 or
800-282-1780 (within Ohio).
1 Base income for corporations is the separate
return (IRS form 1120 or 1120A) "line 28" income; base income
for individuals is Ohio adjusted gross income.