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California bond income

I have been told that the capital gain income from certain California bonds is exempt from California state income tax. (Generally, it is just the interest income that is exempt.) They cite Cal. Gov. Code Sec. 99016 that provides that bonds issued pursuant to the California Fiscal Recovery Financing Act are exempt. That code section says that "Any and all bonds issued by the Authority, their transfer, and the income therefrom, shall at all times be free from taxation of every kind by the state." Is this true? Does anyone have any rulings or decisions or other documentation that supports this position? Thanks.

--Bruce

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Bruce
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Occasionally I get a Massachusetts municipal bond whose prospectus claims (explicitly--not as "all taxes") that profit on the sale or other disposition is exempt from state capital gain tax. Also, each year my muni bond fund reports a fraction of its capital gain distributions as (they added "possibly" in recent years) exempt from state tax. I haven't been able to identify a characteristic of the bond that correlates with the statement in the prospectus and the fund folks can't tell me where they get the number (though I never pushed too hard). The thing that bothers be is that I typically get a prospectus only when I purchase the bond at or near issue, so I'm likely missing out on any exemption from secondary market purchases. It would be nice to understand what is going on. Dan Lanciani ddl@danlan.*com

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Dan Lanciani

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