Local and state governments always have ongoing projects. Hospitals, arts districts, and public schools often require improvements, and one way to fund such projects is with municipal bonds. If you’ve ever invested your money, you’ve probably heard of municipal bonds as a safe investment opportunity. They’re often low-risk and high reward, but are municipal bonds taxed by the state of Wisconsin?

municipal bonds tax

What is a Municipal Bond?

Municipal bonds are used to fund local and state projects. Bonds are sold to the public as a way to fund capital expenditures like schools, highways, housing developments, and other public improvements. These debt securities are a way to pay for projects in cities, municipalities, and across the state while returning interest to the buyer. Typically, bonds are investments with set terms from months to years. Different types of municipal bonds have different term lengths depending on the type of project it’s funding. Once the bond term ends, the original principal is returned to the buyer. Mutual bonds benefit both the issuer and the bondholder; the municipality gets immediate funding to complete the project while the buyer gets a steady stream of interest, usually semi-annually. 

Municipal Bond Tax Laws in Wisconsin

Any investor knows that most income generated from investments is taxed by both the state and federally. However, because municipal bonds fund capital expenditures, the interest earned by the bondholder is exempt from federal taxes. That’s because the bond issuer (city, municipality, state, etc.) is completing a tax-exempt project. However, Wisconsin law states that the interest must be taxed by the state by including the interest in your adjusted gross income. There are some exceptions to this rule, as the state of Wisconsin exempts certain municipal bonds from being taxed. Wisconsin government doesn’t require state income tax to be paid on municipal bonds that fund specific projects, including:

  • Public housing projects issued by Wisconsin municipalities
  • Public housing projects issued by states other than Wisconsin that meet certain criteria
  • Bonds issued by the Wisconsin Housing Authority
  • Bonds issued by the Wisconsin Aerospace Authority
  • Some conduit revenue bonds
  • Wisconsin professional football stadium or baseball park bonds
  • Local expeditions and cultural district bonds

Are Municipal Bonds Issued by Other States Taxed in Wisconsin?

According to Wisconsin law, bonds purchased from cities, municipalities, counties, or states outside of Wisconsin are subject to state tax. Again, there are some exceptions. For example, public housing agency bonds issued in a different state are not subject to state tax if they were issued before January 28, 1987. As you can imagine, only a select few municipal bonds issued outside of Wisconsin are exempt.

There’s a long list of municipal bonds that aren’t taxed by the state or federal government, just as many types of municipal bonds are taxed. In order to offer an attractive investment opportunity while completing a project, municipalities might consider consulting with a public financing attorney. A lawyer can assist with issuing bonds that follow local and state laws while ensuring that the financials of the project are correct.

At Atolles Law, S.C., we have an experienced team of public financing lawyers who specialize in municipal bonds. If your municipality needs legal assistance with municipal bonds, contact Atolles Law, S.C. today for a consultation.