Mutual Exclusion Doctrine


DEFINITION of 'Mutual Exclusion Doctrine'

An agreement between federal and state and local taxing authorities mandating mutual exclusion in taxation of interest. The interest paid on any security issued by the federal government is not taxable at the state or local level. Conversely, any debt issued by state or local municipalities is free from federal taxation as well.

BREAKING DOWN 'Mutual Exclusion Doctrine'

This reciprocal agreement has been in place for decades. For this reason, high income taxpayers seek municipal issues for federal tax relief. The freedom from state and local taxes also makes interest from governmental issues more palatable for conservative investors living on fixed incomes.

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  1. Where can I buy government bonds?

    The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase ... Read Full Answer >>
  2. What is the difference between municipal bonds and standard money market funds?

    The primary difference between municipal bonds - also known as "munis" - and money market funds is that municipal bonds are ... Read Full Answer >>
  3. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  4. Does a Flexible Spending Account (FSA) cover braces?

    Funds from a Flexible Spending Account (FSA) can be used to cover costs associated with installing, maintaining and removing ... Read Full Answer >>
  5. Does QVC charge sales tax?

    QVC, an American TV network, is registered with states to collect sales or use tax on taxable items. QVC is also required ... Read Full Answer >>
  6. Does a Flexible Spending Account (FSA) cover glasses?

    The funds in a Flexible Spending Account (FSA) can be used to cover most common medical expenses; this includes the cost ... Read Full Answer >>

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