C. Christopher Trower, attorney who defended in-state tax-exemption, dies

Attorney C. Christopher Trower, who successfully defended states' right to offer tax exemptions for in-state bonds, died on Thanksgiving Day. He was 77.  

Trower was the lead attorney for Kentucky in the U.S. Supreme Court case that resulted in a 2008 ruling upholding states' rights to preferential tax treatment of in-state municipal bonds.

He went on to serve on the Municipal Securities Rulemaking Board from 2010 to 2012.  

Trower was the counsel of record for Kentucky on the tax-exemption case, Kentucky v. Davis. A Kentucky married couple argued the state's policy of taxing interest on out-of-state issued bonds while exempting interest on the state's debt violated the Constitution's Commerce Clause, which reserves to Congress the power to erect barriers to interstate trade.

The Supreme Court took the case after a Kentucky state appeals court ruled in favor of the couple and the state's Supreme Court declined to hear the case.

Trower represented Kentucky along with three attorneys from the state's Finance and Administration Cabinet.

"The exemption is nothing more than an economic term of Kentucky's relationship with its direct trading partners, no more objectionable than a discount or rebate would be if Kentucky bought goods or services," Trower and his associates argued in their brief to the Supreme Court. "The taxation of sister state bond interest is nothing more than a revenue measure no more objectionable than the taxation of corporate bond interest." 

In his oral arguments, Tower told the justices that the state has a right to encourage its residents to purchase its bonds because the proceeds would go toward developments that benefit its residents.

"Bonds are not issued by states to make a profit or to leverage their return on equity. They're not created for investment opportunities on Wall Street. They're issued to finance the essential work of government," he said.

Eight market groups filed briefs in support of Kentucky's defense of exclusive tax exemption for its own bonds with the Supreme Court: the Securities Industry and Financial Markets Association, National Association of State Treasurers, North Carolina Attorney General Roy Cooper on behalf of all attorneys general except for that of North Carolina, the Government Finance Officers Association on behalf of eight other state and local groups, and three investment fund groups. All 50 states told the Supreme Court they favored the right of states to exempt their own bonds from state taxes.

Justice David Souter wrote the majority opinion, which six other justices either fully or partially supported. Justices Anthony Kennedy and Samuel Alito dissented. 

The state's tax exemption for its own bonds are not barred by the Commerce Clause because the objectives are the public's good and not economic protectionism, Souter said. 

Trower went on to join the MSRB in 2010 as a public member, as part of its expansion to 21 members from 15 following the Dodd-Frank Act. 

The board probably picked Trower as someone who knew something about municipal bonds but wasn't part of the industry and had distinguished himself in the Supreme Court case, said Ernesto Lanza, then MSRB general counsel and now its chief regulatory and policy counsel. 

During his tenure on the board Trower would usually join discussions after they started by asking why practices were the way they were, Lanza said. Sometimes the questions would lead the board to realize the practices would be changed in a significant way. Other times, the questions would make the board recognize the reasons for the procedures and this would aid the board in fine-tuning the procedures. 

At the time Trower was one of just two practicing attorneys on the board. 

Trower is survived by his wife Linda; his two children, Caitlin Trower and Nate Trower; and two grandchildren.