Usually, all distributions paid to you will be subject to both federal and state income taxes. There are, however, a few exceptions to this rule. Dividends paid from a municipal bond or municipal money market fund are generally exempt from federal tax and may also be exempt from state tax if the dividend-paying security was issued by a municipality in the state in which you reside. Also, dividends derived from certain government obligations, such as U.S. Treasury securities, are exempt from state tax in most states. If you have any questions concerning a specific tax rule or your state's tax procedures, we recommend that you check with your state tax officials or seek the advice of a qualified tax professional.
Tax laws vary from state to state and change frequently.
Income from state and local municipal bonds is generally exempt from federal income tax. This statement will help you prepare your tax return and report gains and losses to the Internal Revenue Service on sales of mutual fund shares during the current tax year. This statement uses the average cost single-category method of accounting. Although this accounting method is commonly used, it is only one of four IRS-approved methods for calculating gains or losses on sales of mutual fund shares. You are encouraged to consult your tax advisor to determine whether you are eligible to use the accounting information provided and whether this method is the best one for you.