Is Guam in Ohio? [Tax-exempt bond fund holding]

[sport]

I was just looking at the Annual Report for the Vanguard Ohio Long-Term Tax Exempt Fund. Looking through the holdings, I found what one might expect. There are a lot of issues of municipalities and universities etc. However, there are two holdings that I do not understand:
Guam Government Business Privilege Tax Revenue
Guam Government Waterworks Authority, Water and Waste Water System Revenue

Why would an Ohio Tax-Exempt fund invest in Bonds issued by the government of Guam? If Vanguard wants to invest in these issues, wouldn't they be more appropriate for some other fund? I understand that they make up a very small part of the Ohio fund at only 0.4%. However, why would these holdings be in this fund?

[livesoft]

I would think they are tax-exempt from Ohio taxes.

[PFInterest]

Did you look up their yield?

[nisiprius]

Is Guam in Ohio? Ha ha ha ha ha! Don't be silly. Guam is in Missouri.



Guam, Missouri

Guam is an unincorporated community in Stoddard County, Missouri, United States.[1] It is ten miles northeast of Dexter. Guam was originally called "Paront", and under the latter name was founded ca. 1910. The present name is after the territory of Guam.

And that's everything Wikipedia knows about Guam, Missouri.

[HueyLD]

AFAIK, interest from obligations issued by Guam, Puerto Rico and the U.S. Virgin Islands is tax-exempt in most states.

[sport]

AFAIK, interest from obligations issued by Guam, Puerto Rico and the U.S. Virgin Islands is tax-exempt in most states.

That is interesting. Do you know the reason for this? It is not what one might expect.

[jhfenton]

AFAIK, interest from obligations issued by Guam, Puerto Rico and the U.S. Virgin Islands is tax-exempt in most states.

Hence the number of (non-Vanguard) state-specific muni mutual funds that surprised folks with their stakes in Puerto Rico last year. "What do you mean my Maryland muni fund had 20% in PR?"

[jhfenton]

AFAIK, interest from obligations issued by Guam, Puerto Rico and the U.S. Virgin Islands is tax-exempt in most states.

That is interesting. Do you know the reason for this? It is not what one might expect.

I don't know the history, but it's federal law that states cannot tax territory obligations.

[Geologist]

If I had to guess, the federal exemption for all states for the territories was to expand the market for their municipal bonds. After all, how many people can there be to buy Guam munis if only Guam residents could purchase them as tax-free investments?

[joe8d]

Guam is one of the 57 "States" of the Union

[qwertyjazz]

No but O-H-I-O is in Guam
https://www.osu.edu/O-H-I-O/37031

[sport]

No but O-H-I-O is in Guam
https://www.osu.edu/O-H-I-O/37031

O H

[pedsEDdoc]

I O...

[VictoriaF]

In Guam snakes hang from trees. Someone is selling Ohio snake oil.

Victoria

[toto238]

I believe Guam, American Samoa and Puerto Rico bonds are tax exempt in all 50 states.

Also usually those municipal bond funds are only required to hold 80% or more of their assets in securities that are tax-exempt for that state. The other 20% can be in virtually anything else, including bonds of other states.

[sport]

I believe Guam, American Samoa and Puerto Rico bonds are tax exempt in all 50 states.

Also usually those municipal bond funds are only required to hold 80% or more of their assets in securities that are tax-exempt for that state. The other 20% can be in virtually anything else, including bonds of other states.

IIRC, Vanguard states that their state specific tax exempt funds are 100% state tax exempt for the state specified.

[toto238]

I believe Guam, American Samoa and Puerto Rico bonds are tax exempt in all 50 states.

Also usually those municipal bond funds are only required to hold 80% or more of their assets in securities that are tax-exempt for that state. The other 20% can be in virtually anything else, including bonds of other states.

IIRC, Vanguard states that their state specific tax exempt funds are 100% state tax exempt for the state specified.

Taken from the fund prospectus of the Ohio Long-Term Tax-Exempt fund:

Principal Investment Strategies
The Fund invests primarily in high-quality municipal bonds issued by Ohio state and local
governments, as well as by regional governmental and public financing authorities. Under
normal circumstances, at least 80% of the Fund’s assets will be invested in securities
whose income is exempt from federal and Ohio state taxes. Although the Fund has no
limitations on the maturities of individual securities, its dollar-weighted average maturity
is expected to be between 10 and 25 years.

https://personal.vanguard.com/us/funds/ ... IntExt=INT (page 4 of 9 of Summary Prospectus)

[toto238]

It appears that Vanguard makes a habit of staying way above the 80% minimum, staying north of 95% or eve 99% in some cases. but their prospectus does allow them the flexibility to go all the way down to 80% if they deem it to be appropriate.

[rkhusky]

Does that mean that I should be adding the percentages (listed here: http://www.vanguard.com/pdf/INBST_012017.pdf) from the territories to my state percentage for Intermediate Tax Exempt?

[toto238]

Does that mean that I should be adding the percentages (listed here: http://www.vanguard.com/pdf/INBST_012017.pdf) from the territories to my state percentage for Intermediate Tax Exempt?

I think so, but I'm not a tax guy. Don't take my word for it. I could be 100% wrong on this.

[sport]

Does that mean that I should be adding the percentages (listed here: http://www.vanguard.com/pdf/INBST_012017.pdf) from the territories to my state percentage for Intermediate Tax Exempt?[/quote=]

I think so, but I'm not a tax guy. Don't take my word for it. I could be 100% wrong on this.

From the link:

Do you invest in a Vanguard state-specific municipal bond fund?
If so, investment income you’ve received may not be subject to state income tax. In addition to being 100%
exempt from federal income taxes, interest dividends from Vanguard state-specific municipal bond funds (listed
below) are 100% exempt from state taxes to resident shareholders of that state. For example, if you reside in
California and own shares of Vanguard California Tax-Exempt Money Market Fund, the income reported on Form
1099-DIV, Box 10, is 100% exempt from California state income tax. Note that tax-exempt income from a statespecific
municipal bond fund may be subject to state-imposed alternative minimum tax requirements, depending
on the state tax laws that apply to you.
Funds
Vanguard California Tax-Exempt Money Market Fund
Vanguard California Intermediate-Term Tax-Exempt Fund
Vanguard California Long-Term Tax-Exempt Fund
Vanguard Massachusetts Tax-Exempt Fund
Vanguard New Jersey Tax-Exempt Money Market Fund
Vanguard New Jersey Long-Term Tax-Exempt Fund
Vanguard New York Tax-Exempt Money Market Fund
Vanguard New York Long-Term Tax-Exempt Fund
Vanguard Ohio Tax-Exempt Money Market Fund
Vanguard Ohio Long-Term Tax-Exempt Fund
Vanguard Pennsylvania Tax-Exempt Money Market Fund
Vanguard Pennsylvania Long-Term Tax-Exempt Fund

[The Wizard]

In Guam snakes hang from trees. Someone is selling Ohio snake oil.

Victoria

...And there are no birds left in Guam because of these snakes...

[MeVe671]

In Guam snakes hang from trees. Someone is selling Ohio snake oil.

Victoria

...And there are no birds left in Guam because of these snakes...

There are still birds in Guam, just not the koko bird.

[normaldude]

0.4% is insignificant.

Oppenheimer Maryland & Virginia muni bond funds had over 30% invested in Puerto Rico bonds.

http://www.cnbc.com/2015/06/30/is-your- ... -rico.html

http://www.kiplinger.com/article/invest ... funds.html

[sport]

0.4% is insignificant.

Oppenheimer Maryland & Virginia muni bond funds had over 30% invested in Puerto Rico bonds.

http://www.cnbc.com/2015/06/30/is-your- ... -rico.html

http://www.kiplinger.com/article/invest ... funds.html

I know it is insignificant. I just wondered why it was there at all. Now I know.

[Good Listener]

Is Guam in Ohio? Ha ha ha ha ha! Don't be silly. Guam is in Missouri.



Guam, Missouri

Guam is an unincorporated community in Stoddard County, Missouri, United States.[1] It is ten miles northeast of Dexter. Guam was originally called "Paront", and under the latter name was founded ca. 1910. The present name is after the territory of Guam.

And that's everything Wikipedia knows about Guam, Missouri.

Very funny my good man.

[Good Listener]

Is Guam in Ohio? Ha ha ha ha ha! Don't be silly. Guam is in Missouri.



Guam, Missouri

Guam is an unincorporated community in Stoddard County, Missouri, United States.[1] It is ten miles northeast of Dexter. Guam was originally called "Paront", and under the latter name was founded ca. 1910. The present name is after the territory of Guam.

And that's everything Wikipedia knows about Guam, Missouri.

Very funny my good man.

[Miriam2]

From our Wiki wiki/Municipal_bonds

Areas of note:
Puerto Rico, Guam, and US Virgin Islands: No state can tax bond interest issued by US territories.[4]

[4] Tax-Exemption from State Income Taxes, from http://www.MunicipalBonds.com

"Bonds From U.S. Territories
No state can tax bond interest issued by U.S. territories such as Puerto Rico, Guam, and the U.S. Virgin Islands. A resident of any state can buy bonds issued by the territories and have the interest tax-exempt from their state’s income taxes."

http://www.municipalbonds.com/tax-educa ... ome-taxes/

[TIAX]

57 Ohio Rev. Code 5747.01 (A)(I)-(3):

Add interest or dividends on obligations of any authority, commission, instrumentality, territory, or possession of the United States to the extent that the interest or dividends are exempt from federal income taxes but not from state income taxes.

http://uscode.house.gov/view.xhtml?req= ... ion=prelim

All bonds issued by the government of Guam or by its authority shall be exempt, as to principal and interest, from taxation by the Government of the United States or by the government of Guam, or by any State or Territory or any political subdivision thereof, or by the District of Columbia.

[rkhusky]

I'll take the preceding two posts as evidence that I should be adding the territory percentages for my non-state-specific muni funds to the percentage from my state. I know it will only save me less than a dollar in state taxes, but I still like to be accurate.

[Earl Lemongrab]

Is Guam in Ohio? Ha ha ha ha ha! Don't be silly. Guam is in Missouri.

So is Cuba. I don't know what all this talk about travel restrictions is. I think you can just drive there.

[pfrank]

I would be very concerned about any holdings in Guam. I am surprised Vanguard continues to hold Guam bonds. Congress even highlighted the issue. Personally, the risk is too great for me. Here is the Congressional hearing on the subject:
https://youtu.be/bs23CjIWMgA

[jhfenton]

I would be very concerned about any holdings in Guam. I am surprised Vanguard continues to hold Guam bonds. Congress even highlighted the issue. Personally, the risk is too great for me. Here is the Congressional hearing on the subject:
https://youtu.be/bs23CjIWMgA

I understand your concern, but a few things mitigate that:

1. The Ohio TE fund's Guam holdings are tiny: two issues worth $2.5MM and $2.0MM in a $1.1B fund. That's 0.42% of fund assets.

2. Both issues are revenue bonds of a type that are usually safe: business privilege tax and waterworks. The business privilege tax bond is rated A- by Fitch with high priority claims largely insulated from general fund issues. The waterworks bond is barely investment grade at BBB-, but feels safer than that to me reading the rating summary. (And again, it's tiny.)

[House Blend]

I'll take the preceding two posts as evidence that I should be adding the territory percentages for my non-state-specific muni funds to the percentage from my state. I know it will only save me less than a dollar in state taxes, but I still like to be accurate.

The correct answer may depend on your state. For example, when I report my adjustments involving muni fund interest on my state tax return, I add Guam and PR etc to the interest from my resident state. On the other hand, Mom is a CA resident, and when I report her interest from national muni bond funds, I report it as 100% taxable by CA, including the part involving Guam.

While I do not know for sure if I am forcing Mom to pay a few extra dollars of CA income tax (and I am not a tax lawyer), it is not a no-brainer.

The subtlety here is that while CA cannot tax the interest from any Guam bonds that my Mom may own, she does not actually own any Guam bonds. She owns shares in a mutual fund (aka "registered investment company"), and it is not so clear that this tax-exemption extends when income is distributed to shareholders from this or any mutual fund. It may be that CA has the right to tax or not tax income distributed from RICs as it sees fit.

This issue with CA law specifically came up for discussion in a recent thread, but I don't think any definitive conclusion was reached.
viewtopic.php?f=2&t=209698

[rkhusky]

The subtlety here is that while CA cannot tax the interest from any Guam bonds that my Mom may own, she does not actually own any Guam bonds. She owns shares in a mutual fund (aka "registered investment company"), and it is not so clear that this tax-exemption extends when income is distributed to shareholders from this or any mutual fund. It may be that CA has the right to tax or not tax income distributed from RICs as it sees fit.

Does this mean that you need to check whether any of your state's muni bonds held in a mutual fund are in fact state tax exempt, even for a state-specific muni fund?

[House Blend]

The subtlety here is that while CA cannot tax the interest from any Guam bonds that my Mom may own, she does not actually own any Guam bonds. She owns shares in a mutual fund (aka "registered investment company"), and it is not so clear that this tax-exemption extends when income is distributed to shareholders from this or any mutual fund. It may be that CA has the right to tax or not tax income distributed from RICs as it sees fit.

Does this mean that you need to check whether any of your state's muni bonds held in a mutual fund are in fact state tax exempt, even for a state-specific muni fund?

Probably not for a state-specific muni fund; that's the whole point of having such a fund.

But yes, there are a few states (such as California) that tax the interest distributed by a mutual fund, even the portion attributable to bonds issued by or within their own state, unless the fund passes some sort of percentage threshold.

[rkhusky]

Probably not for a state-specific muni fund; that's the whole point of having such a fund.

Just because Vanguard (or some other company) puts together a state-specific muni fund doesn't apparently require the state to agree that the fund's dividends are state tax exempt. Or should we assume that Vanguard checked this out before they created the fund?

[House Blend]

Probably not for a state-specific muni fund; that's the whole point of having such a fund.

Just because Vanguard (or some other company) puts together a state-specific muni fund doesn't apparently require the state to agree that the fund's dividends are state tax exempt. Or should we assume that Vanguard checked this out before they created the fund?

YMMV, but I would be willing to trust that the fund-creator has successfully jumped through the proper hoops.

If you want independent confirmation, you should research your own state's tax laws. If you are lucky, the instruction booklets for your state income tax may be clear enough on the topic.

In the case of CA, the instructions are YUUGELY unclear. However, one thing they do make clear is that if at least 50% of the interest distributed by your mutual fund would be CA tax-exempt if held individually, then that portion of the interest is CA tax exempt. (The rest of the interest is still CA taxable.)