Mutual Exclusion Doctrine

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Foreign Housing Exclusion And Deduction

    An allowance for taxpayers who live and work in a foreign country ...
  2. Government Bond

    A debt security issued by a government to support government ...
  3. Business Risk Exclusion

    A type of coverage that is often omitted from product liability ...
  4. Interest

    1. The charge for the privilege of borrowing money, typically ...
  5. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  6. Working Tax Credit (WTC)

    A tax credit offered to low-income individuals working in the ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. The Basics Of Municipal Bonds
    Bonds & Fixed Income

    The Basics Of Municipal Bonds

  3. Avoid Tricky Tax Issues On Municipal ...
    Taxes

    Avoid Tricky Tax Issues On Municipal ...

  4. Where can I buy government bonds?
    Investing

    Where can I buy government bonds?

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center