IT 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 income
I. 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 obligation(s)".
a. Interest on U.S. Treasury bonds, notes, bills,
certificates, and saving bonds (example; series E, F, G, and
b. 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.
II. 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.
a. Banks' notes, debentures and other obligations issued for
cooperatives (12 U.S.C.A. section 2134)
b. Commodity credit corporation's bonds, notes, debentures,
and other similar obligations (15 Federal Trade Commission)
c. 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).
d. Federal Deposit Insurance Corporation's notes, bonds,
debentures or other such obligations (12 U.S.C.A. section
e. Federal Farm Credit Banks' consolidated system-wide notes,
bonds, debentures, and other similar obligations (12 U.S.C.A.
f. 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)
g. Federal intermediate credit banks' notes, bonds,
debentures and other similar obligations (12 U.S.C.A.
sections 2204 and 2023) (Treated as a subclass of Fed. Farm
h. Federal Land Banks and Associations' notes, bonds,
debentures or other such obligations (12 U.S.C.A. section
i. Federal Savings and Loan Insurance Corporations' notes,
bonds, debentures or other such obligations, (12 U.S.C.A.
j. Financing corporation's (FICO) obligations (12 U.S.C.A.
k. 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.
l. National Credit Union Administration Central Liquidity
Facility's notes, bonds, debentures and other similar
obligations (12 U.S.C.A. section 1795k(b))
m. Production Credit Association's notes, debentures, and
other similar obligations (12 U.S.C.A. section 2077)
n. Resolution Funding corporation's obligations (12 U.S.C.A.
o. Student Loan Marketing Association's obligations (20
U.S.C.A. section 1087-2(b)(2))
p. Tennessee Valley Authority's bonds (16 U.S.C.A. section
q. United States Postal Service's obligations (39 U.S.C.A.
r. Export-Import Banks of the United States' obligations (12
U.S.C.A. section 635(d))
s. District of Columbia's obligations
t. Farmers Home Corporation's obligations (12 U.S.C.A.
u. Federal Farm Loan Corporation's obligations (12 U.S.C.A.
v. Federal Housing Administration's obligations (12 U.S.C.A.
w. Home Owner's Loan Corporation's obligations (12 U.S.C.A
section 1463 - abolished 1953)
x. Joint Stock Land Banks' farm loan bonds and mortgages (12
U.S.C.A. section 2098)
y. Maritime Administration's Merchant Marine Bonds (12
z. Small Business Administration's obligations (15 U.S.C.A.
aa. U.S. Housing Authority's obligations (42 U.S.C.A. section
bb. Territorial Obligations:
- American Samoa - Interest from industrial development
bonds for Eastern Samoa issued by the Government of American
Samoa as set forth in 48 U.S.C. § 1670.
- Guam - Interest from bonds issued by the Government of
Guam as set forth in 48 U.S.C. § 1423a.
- Northern Mariana - Interest from bonds or other
obligations issued by the Government of the Northern Mariana
Islands as set forth in 48 U.S.C. § 1801 and § 607 of the
Covenant to Establish a Commonwealth of the Northern Mariana
- Puerto Rico - Interest from bonds issued by the
Government of Puerto Rico as set forth in 48 U.S.C. § 745.
- Virgin Islands - Interest from bonds issued by the
Government of the Virgin Islands as set forth in 48 U.S.C. §
Special Notes to Sections I and II
A. 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.s 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 Hartzell v.
Limbach (August 23, 1991), BTA Case No. 89-F-590.
B. 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.
C. 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
D. 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 financial reports.
* * * * *
Tax Information Releases are not "Opinions of the Tax
Commission" 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 law.
For further assistance please call 614-846-6712 or
800-282-1780 (within Ohio).
1 Base income for corporations
is the separate report (Form FT-1120) Schedule B, line 5 base
income; base income for individuals is Ohio adjusted gross