# 26 U.S.C. § 103: Interest on State and local bonds Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 103(a)(1). ## § 103(a) Exclusion Except as provided in subsection (b), gross income does not include interest on any State or local bond. ## § 103(b) Exceptions Subsection (a) shall not apply to— **§ 103(b)(1) Private activity bond which is not a qualified bond.** Any private activity bond which is not a qualified bond (within the meaning of section 141). **§ 103(b)(2) Arbitrage bond.** Any arbitrage bond (within the meaning of section 148). **§ 103(b)(3) Bond not in registered form, etc..** Any bond unless such bond meets the applicable requirements of section 149. ## § 103(c) Definitions For purposes of this section and part IV— **§ 103(c)(1) State or local bond.** The term “State or local bond” means an obligation of a State or political subdivision thereof. **§ 103(c)(2) State.** The term “State” includes the District of Columbia and any possession of the United States. ## Regulations - [Treas. Reg. § 1.103-1](/26/reg/1.103-1.md): Interest upon obligations of a State, territory, etc. (interprets § 103) - [Treas. Reg. § 1.103-2 - 1.103-6](/26/reg/1.103-2 - 1.103-6.md): §§ 1.103-2-1.103-6 [Reserved] (interprets § 103) - [Treas. Reg. § 1.103-7](/26/reg/1.103-7.md): Industrial development bonds. (interprets § 103) - [Treas. Reg. § 1.103-8](/26/reg/1.103-8.md): Interest on bonds to finance certain exempt facilities. (interprets § 103) - [Treas. Reg. § 1.103-9](/26/reg/1.103-9.md): Interest on bonds to finance industrial parks. (interprets § 103) - [Treas. Reg. § 1.103-10](/26/reg/1.103-10.md): Exemption for certain small issues of industrial development bonds. (interprets § 103) - [Treas. Reg. § 1.103-11](/26/reg/1.103-11.md): Bonds held by substantial users. (interprets § 103) - [Treas. Reg. § 1.103-16](/26/reg/1.103-16.md): Obligations of certain volunteer fire departments. (interprets § 103) ## Final rules - [84 FR 9231](https://www.federalregister.gov/documents/2019/03/14/2019-03474/eliminating-unnecessary-tax-regulations) (2019): Eliminating Unnecessary Tax Regulations - [76 FR 51879](https://www.federalregister.gov/documents/2011/08/19/2011-21154/definition-of-solid-waste-disposal-facilities-for-tax-exempt-bond-purposes) (2011): Definition of Solid Waste Disposal Facilities for Tax-Exempt Bond Purposes - [62 FR 25502](https://www.federalregister.gov/documents/1997/05/09/97-12062/arbitrage-restrictions-on-tax-exempt-bonds) (1997): Arbitrage Restrictions on Tax-Exempt Bonds - [61 FR 515](https://www.federalregister.gov/documents/1996/01/08/96-164/removal-of-final-and-temporary-regulations) (1996): Removal of Final and Temporary Regulations - [FR Doc. 94-11104](https://www.federalregister.gov/documents/1994/05/10/94-11104/arbitrage-restrictions-on-tax-exempt-bonds) (1994): Arbitrage Restrictions on Tax-Exempt Bonds ## Leading cases - [Stewart v. Commissioner, 714 F.2d 977 (9th Cir. 1983)](https://www.courtlistener.com/opinion/423616/spencer-d-stewart-et-ux-v-commissioner-of-internal-revenue/) - [American National Bank of Austin v. United States, 421 F.2d 442 (5th Cir. 1970)](https://www.courtlistener.com/opinion/288293/american-national-bank-of-austin-v-united-states/) - [State of Washington v. Commissioner, 692 F.2d 128 (D.C. Cir. 1982)](https://www.courtlistener.com/opinion/410333/state-of-washington-v-commissioner-of-internal-revenue/) ## Proposed regulations (not in force) - [Prop. Treas. Reg. § 1.103-7](/26/prop/1.103-7_94-31430.md): [Removed] (FI-72-88, proposed 1994-12-30) ## Connections Cites: § 141 Private activity bond; qualified bond; § 148 Arbitrage; § 149 Bonds must be registered to be tax exempt; other requirements Cited by: § 42 Low-income housing credit; § 45 Electricity produced from certain renewable resources, etc.; § 45D New markets tax credit; § 45K Credit for producing fuel from a nonconventional source; § 57 Items of tax preference; § 142 Exempt facility bond; § 143 Mortgage revenue bonds: qualified mortgage bond and qualified veterans’ mortgage bond; § 144 Qualified small issue bond; qualified student loan bond; qualified redevelopment bond; § 145 Qualified 501(c)(3) bond; § 148 Arbitrage; § 149 Bonds must be registered to be tax exempt; other requirements; § 150 Definitions and special rules; § 168 Accelerated cost recovery system; § 265 Expenses and interest relating to tax-exempt income; § 465 Deductions limited to amount at risk; § 512 Unrelated business taxable income; § 593 Reserves for losses on loans; § 643 Definitions applicable to subparts A, B, C, and D; § 646 Tax treatment of electing Alaska Native Settlement Trusts; § 667 Treatment of amounts deemed distributed by trust in preceding years; § 811 Accounting provisions; § 832 Insurance company taxable income; § 834 Determination of taxable investment income; § 851 Definition of regulated investment company; § 852 Taxation of regulated investment companies and their shareholders; § 871 Tax on nonresident alien individuals; § 1275 Other definitions and special rules; § 4940 Excise tax based on investment income; § 4942 Taxes on failure to distribute income; § 7478 Declaratory judgments relating to status of certain governmental obligations; § 7518 Tax incentives relating to merchant marine capital construction funds; § 7701 Definitions; § 7871 Indian tribal governments treated as States for certain purposes Derived from: 1939 § 22(b)(3)-(5) ## Amendments - 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 29 - 1968-06-28: [Pub. L. 90-364](/26/act/90-364.md), 82 Stat. 266 - 1968-10-24: [Pub. L. 90-634](/26/act/90-634.md), 82 Stat. 1349 - 1969-12-30: [Pub. L. 91-172](/26/act/91-172.md), 83 Stat. 656 - 1971-12-10: [Pub. L. 92-178](/26/act/92-178.md), 85 Stat. 529 - 1975-12-23: [Pub. L. 94-164](/26/act/94-164.md), 89 Stat. 976 - 1975-12-31: [Pub. L. 94-182](/26/act/94-182.md), 89 Stat. 1056 - 1976-10-04: [Pub. L. 94-455](/26/act/94-455.md), 90 Stat. 1765 - 1978-08-08: [Pub. L. 95-339](/26/act/95-339.md), 92 Stat. 467 - 1978-11-06: [Pub. L. 95-600](/26/act/95-600.md), 92 Stat. 2839 - 1980-04-01: [Pub. L. 96-222](/26/act/96-222.md), 94 Stat. 223 - 1980-04-02: [Pub. L. 96-223](/26/act/96-223.md), 94 Stat. 281 - 1980-12-05: [Pub. L. 96-499](/26/act/96-499.md), 94 Stat. 2669 - 1981-08-13: [Pub. L. 97-34](/26/act/97-34.md), 95 Stat. 349 - 1982-09-03: [Pub. L. 97-248](/26/act/97-248.md), 96 Stat. 466 - 1983-01-06: [Pub. L. 97-424](/26/act/97-424.md), 96 Stat. 2199 - 1983-01-14: [Pub. L. 97-473](/26/act/97-473.md), 96 Stat. 2609 - 1984-07-18: [Pub. L. 98-369](/26/act/98-369.md), 98 Stat. 839 - 1986-04-07: [Pub. L. 99-272](/26/act/99-272.md), 100 Stat. 323 - 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2602 - 1988-11-10: [Pub. L. 100-647](/26/act/100-647.md), 102 Stat. 3544