D.C. Council member Jack Evans introduced a bill on Tuesday to repeal a new tax on out-of-state municipal bonds held by District residents, potentially reversing a revenue generator that prompted hours of debate in last year’s in budget talks.
Mr. Evans, Ward 2 Democrat and chairman of the Committee on Finance and Revenue, said he is getting a litany of calls from confused residents and accountants who cannot keep track of what should be taxed.
Council members decided to tax the interest earned on out-of-state bonds, a common practice across the country, for the first time during discussions about the fiscal year 2012 budget. They made the tax prospective to bonds purchased after Jan. 1 of this year.
But mutual fund managers buy and sell new bonds in the course of business, forfeiting the bondholders’ grandfathered-in status. Overall, the tax “caused enormous confusion and consternation” among the public, Mr. Evans said at the council’s legislative meeting.
At a pre-meeting breakfast, council Chairman Kwame R. Brown told Mr. Evans that he would support the repeal because the bonds tax is a burden on seniors.
Council members Muriel Bowser, Ward 4 Democrat, and David Catania, at-large Independent, co-sponsored Mr. Evan’s bill.
A repeal of the tax would cost the District about $2 million, officials said.
“Frankly from my point of view, it’s just not worth it,” Mr. Evans said. “It has just created chaos.”