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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6117 January 6, 1983 FOREST IMPROVEMENT ACT: Tax exempt status of bonds issued by forest district A forest improvement district is a political subdivision under the Internal Revenue Code of 1954, Sec. 103, and the interest received on bonds issued by such district would be excludable from the bondholder's gross income for federal income tax purposes. Honorable Donald Koivisto State Representative The Capitol Lansing, Michigan You have requested my opinion on whether a forest district organized under the forest improvement act, 1980 PA 298; MCLA 320.1101 et seq; MSA 13.267(101) et seq is possessed of statutory authority sufficient to qualify its bonds, issued under Article 7 of the Act, for tax exempt status under the provisions of the Internal Revenue Code. The Internal Revenue Code of 1954, Sec. 103(a)(1); 68 A Stat 29 (1954); 26 USCS Sec. 103(a)(1), provides in regard to federal income tax that: '(a) Gross income does not include interest on-- (1) The obligations of a State . . . or any political subdivision of any of the foregoing, . . ..' Treasury Regulations, Sec. 1.103-1(b), 26 CFR 1.103-1(b), relating to Internal Revenue Code, Sec. 103, supra, provides in part: '[The] term 'political subdivision', for purposes of this section denotes any division of any State or local government unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit. . . .' Also, Internal Revenue Cumulative Bulletin 1973-2, Revenue Ruling 73-563, states: 'Section 1.103-1 of the Income Tax Regulations provides, in part, that the term 'political subdivision' denotes any division of any State or local governmental unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit. 'Three generally recognized sovereign powers of states are the police power, the power to tax, and the power of eminent domain. See Alexander J. Shamberg, 3 T.C. 131, (1944) acq., 1945 C.B. 6, aff'd, 144 F.2d 998 (2d Cir. 1944), cert. denied, 323 U.S. 792 (1944).' The forest improvement act, 1980 PA 298, supra, Sec. 406, provides that the forest improvement districts shall constitute a government subdivision of the State of Michigan and a public body corporate and politic. The forest improvement district, as a public body, has the power, inter alia, to condemn private property. 1980 PA 298, supra, Sec. 413(a). It is my opinion, therefore, that a forest improvement district is a political subdivision as this term is used in the Internal Revenue Code of 1954, Sec. 103 supra, and the interest received on bonds issued by a forest improvement district would be excludable from the bondholder's gross income for federal income tax purposes. (1) Frank J. Kelley Attorney General (1)
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