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. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  4. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  5. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  6. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>

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