Fair Taxation of Municipal Bonds Amendment Act of 2025

COUNCIL OF THE DISTRICT OF COLUMBIA
OFFICE OF COUNCILMEMBER BROOKE PINTO
THE JOHN A. WILSON BUILDING
1350 PENNSYLVANIA AVENUE, N.W., SUITE 106
WASHINGTON, D.C. 20004
February 4, 2025
Nyasha Smith, Secretary
Council of the District of Columbia
1350 Pennsylvania Avenue, N.W.
Washington, DC 20004

Dear Secretary Smith,

Today, Councilmember Matthew Frumin and I, along with Councilmember Christina Henderson, are
introducing the “Fair Taxation of Municipal Bonds Amendment Act of 2025.” This bill would exclude from
taxation out-of-state municipal bonds acquired prior to January 1, 2025. I previously introduced an identical
version of this legislation in Council Period 25, B25-0965..

Municipal bonds are a key investment tool used in retirement planning because they promise a modest but
stable return for a secure future. Income from out -of-state municipal bond interest has always been exempt
from District taxes, and so many retirees planned for retirement with this understanding in mind. However, the
enactment of the Fiscal Year 2025 Budget Support Act of 2024 (“FY25 BSA”) brings a drastic change to those
plans: all interest earned on out-of-state municipal bonds starting on January 1, 2025, will be subject to taxation
in the District. While t his change attempted to bring the District in line with many other states on how
municipal bonds are taxed, it failed to protect the careful planning of many residents, including many of our
seniors.

Prior to enacting the FY25 BSA, the Council heard numerous concerns from constituents about the impact this
change would have on retirees who are living on fixed incomes reliant on municipal bond interest. Our
constituents urged the Council to maintain the tax exemption for bonds that were currently held and had been
purchased with a good-faith belief and understanding that the bond interest would not be taxed.

A handful of other states, including Utah, similarly removed a tax exemption for out -of-state bonds but
maintained the exemption for bonds that had been acquired prior to this change. We heard some concerns about
the feasibility of differentiating how bond interest is taxed based on the bond acquisition date. However, recent
conversations with representatives from the Utah State Tax Commission, which implements Utah’s tax laws,
revealed that these fears were overblown; Utah reported no major issues implementing their law or confusion
from bondholders in identifying the acquisition dates of their bonds.

Since the Council passed the FY 2025 budget, my office has continued to hear from retirees on fixed incomes
with serious concerns about the impact that taxing currently held bonds will have on their livelihood. Tax due
on out-of-state bonds will not be paid by taxpayers until spring 2026, when 2025 taxes are filed. As a result,
there remains a short window of time in which the Council may pass this protection into law and protect a
stable financial future for our seniors who are impacted.
Should you have any questions about this legislation, please contact my Legislative Director, Linn Groft, at
lgroft@dccouncil.gov. Thank you.

Best,

Brooke Pinto

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_____________________________ _____________________________
Councilmember Matthew Frumin Councilmember Brooke Pinto

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Councilmember Christina Henderson

A BILL

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IN THE COUNCIL OF THE DISTRICT OF COLUMBIA

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To amend Chapter 18 of Title 47 of the District of Columbia Official Code to maintain the tax 1
exemption for out-of-state municipal bonds acquired prior to October 1, 2024. 2
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BE IT ENACTED BY THE COUNCIL OF THE DISTRICT OF COLUMBIA, That this act may 4
be cited as the “Fair Taxation of Municipal Bonds Amendment Act of 2025”. 5
Sec. 2. Section 47-1803.02(a)(1)(B)(ii) of the District of Columbia Official Code is amended by 6
adding a new sub-subparagraph (III) to read as follows: 7
“(III) Shall not, and shall not have been required to, include 8
interest on the obligations of a state, a territory of the United States, or any political subdivision 9
thereof acquired by the taxpayer before January 1, 2025, in the computation of District gross 10
income.” 11
Sec. 3. Fiscal impact statement. 12
The Council adopts the fiscal impact statement in the committee report as the fiscal 13
impact statement required by section 4a of the General Legislative Procedures Act of 1975, 14
approved October 16, 2006 (120 Stat. 2038; D.C. Official Code § 1-301.47a). 15
Sec. 4. Effective date. 16

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This act shall take effect after approval by the Mayor (or in the event of veto by the 17
Mayor, action by the Council to override the veto), a 30-day period of congressional review as 18
provided in section 602(c)(1) of the District of Columbia Home Rule Act, approved December 19
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(1)), and publication in the District of 20
Columbia Register. 21