If I live in North Carolina but want to buy a tobacco bond in New Jersey, will my bond still be tax-free in North Carolina?
C., North Carolina
Resident of one state, bonds from another
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Municipal Bond Forum
FMSbonds, Inc.’s Municipal Bond Forum is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-FMS-BOND (1-800-367-2663) or e-mail us.
On Kentucky Court Says State Can’t Tax Interest on Out-of-State Bonds
What is the latest on the Kentucky case? I now live in Wyoming, a state with no income tax. If I understand correctly, if the Kentucky case is won, I, as an older retired person, could relocate to Minnesota to be closer to the Mayo clinic and would not have to purchase Minnesota bonds. I could keep what I have now and obtain a higher yield than on Minnesota municipal bonds, or maybe even relocate to Vermont, a state that just does not have municipal bonds. When do you think this case will be settled?
S.M., Wyoming
On GM Steals Spotlight at Auto Show
The problem with GM and Ford is not with the cars, but with the quality of service after the purchase. They are too focused on making a profit for the shareholders. They should put the customer first. GM can’t even sell a Toyota as a Chevy Prizm because everyone can still remember the bad service of the 1970s.
You are really going out on a limb! I called on these buffoons for years and they never got the message. The most mismanaged company I ever called on in my 30-plus years in industrial chemical sales. Now I’m retired and they’re still trying to get their act together. When I spoke to GM CEO Rick Wagoner back in the 80’s, all they wanted was the supplier to cut their prices to make up for their inept ability to run a company. They will go the way of the horse and buggy!
M.N., Hawaii G.C., New Hampshire
On Hidden Gems in the Muni Market (Cont’d):
I evaluate bonds based on yield to maturity. But on rare occasions, I’m faced with a conundrum: If a bond has an early call (2010) but the agency offers 102 or 101 to make the prospect of the lower yield to call less threatening, I ask myself, “Why would they pay more to retire the issue if, by waiting a year or two, they can retire it at a lower cost?” My answer is, it doesn’t make sense to pay premiums to retire bonds. Am I wrong?
S.O., California
On Big Brother Expands Reach
Regarding your article on financial institutions now being required to report bondholders’ tax-exempt interest to the IRS: What’s the reasoning behind this move? If the interest isn’t taxable, this doesn’t make sense to me. Can we withhold this information on our tax forms, since providing it appears to serve no purpose?
A., Massachusetts
Would a flat tax affect munis?
Recently one of your brokers recommended a muni-bond that matures in 2037. I wondered what would happen to its core value and the relative value of the interest it paid if, by some outside chance, there were meaningful tax reform (like a flat tax) during that period. I was told that the idea of such a thing happening was laughable. It may be far fetched, but impossible? I don’t think so.
R.E., Michigan
Tobacco bonds fueling NAV rise
I own two high-yield, tax-exempt muni funds with Oppenheimer (no load) and Vanguard. I have these for yield, but have noticed that the Oppenheimer fund chart shows a steady growth in NAV while Vanguard fund is flat (which is what I would expect). Why would such a fund have a growth curve in NAV?
F.B., North Carolina
On “Hidden Gems in the Muni Market”cont’d #5:
Purchasing premium bonds with a yield advantage to the call as well as to maturity will always provide the best value available. When a premium bond matures at par and you paid over par, don’t you get a capital loss? Would that be another advantage for buying premium bond as long as you adhere to the first sentence?
P.Z., Florida
On “”Hidden Gems in the Muni Market””contd #3
On “Hidden Gems in the Muni Market” cont’d #2
Thank you for your reply. It was very easy to understand and I fully agree. After correcting my original analysis, I calculated that the impact of having to pay state taxes on the premium bond reduced its effective return by only 0.04% compared to a par bond. I’ve been on the verge of buying and selling muni bonds with your company, but since the commissions for bonds are typically imbedded with the purchase price (unlike buying stocks), it is difficult for me to calculate how much I actually pay going through a brokerage firm. How do your commissions for buying and selling muni bonds compare with others?
Start here.
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