WASHINGTON - Kentucky and 41 other states can continue taxing interest on out-of-state municipal bonds while exempting interest on their own bonds without violating the Constitution, the Supreme Court ruled yesterday in a 7-2 decision.

The decision, which reverses a Kentucky appellate court ruling and favors the state over George and Catherine Davis, who sued the state for trying to tax the interest earnings on their out-of-state bonds, concluded that Kentucky's differential tax practices on bonds does not discriminate against interstate commerce, but rather promotes the financing of essential governmental services.

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