State and local governments issue municipal bonds to raise money for daily operations and public projects, such as roads, schools and airports. There are two types of municipal bonds. General obligation bonds are issued to finance ongoing municipal operations. Interest is paid with money raised by the issuer, including imposing taxes. Revenue bonds are issued to finance specific public works, such as toll roads or airports.
Interest is paid with money generated by the project, such as tolls collected.
Most U.S. states don't charge their own residents taxes on income gained from municipal bonds issued in that state. If, for example, you're an Ohio resident, you may not pay federal or state income taxes on the interest earned from a municipal bond issued by an Ohio school district. By investing in municipal bond funds from One Group, you may be able to reduce your tax bill and keep more of what you earn. Interest may be taxable at the state and local levels and income may be subject to the federal alternative minimum tax. Also, any capital gains are taxable.