The Supreme Court 2007 Term — Leading Cases (Department of Revenue of Kentucky v. Davis, 128 S. Ct. 1801 (2008)), 122 Harv. L. Rev. 276 (2008):

Last Term, in Department of Revenue of Kentucky v. Davis, the Court held that Kentucky’s differential bond tax scheme, which exempts interest on bonds issued by Kentucky or its political subdivisions from state income tax but does not exempt the interest of bonds issued by other states, does not violate the dormant commerce clause. The Court rightly relied on its United Haulers holding to validate Kentucky’s tax scheme, and in turn provide a much-needed signal of stability to the debt markets. Although some members of the business community praised Davis as a victory for the municipal debt markets, the Davis ruling is only a hollow victory for them because it does not rule on the tax treatment of an important form of municipal debt issuance — private activity bonds. Until the Court is presented with a case that enables it to rule on the tax treatment of private activity bonds, uncertainty on this issue will continue to affect the municipal bond market.