Revenue Administrative Bulletin 1988-29

Approved: May 27, 1988

TAXABILITY OF INTEREST INCOME DERIVED FROM BONDS ISSUED BY THE COMMONWEALTH OF PUERTO RICO OR BY ITS AUTHORITY

RAB-88-29. This Bulletin clarifies taxability of interest income derived from bonds issued by the Commonwealth of Puerto Rico or by its authority which is earned by a Michigan resident for Michigan Individual Income Tax and Intangibles Tax purposes.

The taxability of income from these bonds is governed by federal law. Generally, this income is exempt from federal, state and local taxation. The applicable statute is 48 U.S.C.A. 745 which reads as follows:

"All bonds issued by the Government of Puerto Rico, or by its authority, shall be exempt from taxation by the Government of the United States, or by the Government of Puerto Rico or of any political or municipal subdivision thereof, or by any State, Territory, or possession, or by any county, municipality, or other municipal subdivision of any State, Territory, or possession of the United States, or by the District of Columbia."

The Department of Treasury will observe the determination of the Internal Revenue Service should a question arise regarding the taxability of a bond issued by the Government of Puerto Rico or by its authority. If the Internal Revenue Service determines that a bond is taxable for federal tax purposes, income from this bond may be subject to Michigan Individual Income Tax. [See Michigan's Income Tax Act, MCL 206.30(1)(a), and/or the Intangibles Tax, MCL 205.131, et seq.]