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-47- <br />If the initial offering price to the public (excluding bond houses and brokers) at which a <br />Bond is sold is less than the amount payable at maturity thereof, then such difference <br />constitutes "original issue discount" for purposes of federal income taxes and State of California <br />personal income taxes. If the initial offering price to the public (excluding bond houses and <br />brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then <br />such difference constitutes "original issue premium" for purposes of federal income taxes and <br />State of California personal income taxes. De minimis original issue discount and original issue <br />premium is disregarded. <br /> <br />Under the Tax Code, original issue discount is treated as interest excluded from federal <br />gross income and exempt from State of California personal income taxes to the extent properly <br />allocable to each owner thereof subject to the limitations described in the first paragraph of this <br />section. The original issue discount accrues over the term to maturity of the Bond on the basis of <br />a constant interest rate compounded on each interest or principal payment date (with straight- <br />line interpolations between compounding dates). The amount of original issue discount <br />accruing during each period is added to the adjusted basis of such Bonds to determine taxable <br />gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The <br />Tax Code contains certain provisions relating to the accrual of original issue discount in the case <br />of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial <br />amount of such maturity. Owners of such Bonds should consult their own tax advisors with <br />respect to the tax consequences of ownership of Bonds with original issue discount, including <br />the treatment of purchasers who do not purchase in the original offering, the allowance of a <br />deduction for any loss on a sale or other disposition, and the treatment of accrued original issue <br />discount on such Bonds under federal individual and corporate alternative minimum taxes. <br /> <br />Under the Tax Code, original issue premium is amortized on an annual basis over the <br />term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The <br />amount of original issue premium amortized each year reduces the adjusted basis of the owner <br />of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of <br />original issue premium on a Bond is amortized each year over the term to maturity of the Bond <br />on the basis of a constant interest rate compounded on each interest or principal payment date <br />(with straight-line interpolations between compounding dates). Amortized Bond premium is <br />not deductible for federal income tax purposes. Owners of premium Bonds, including <br />purchasers who do not purchase in the original offering, should consult their own tax advisors <br />with respect to State of California personal income tax and federal income tax consequences of <br />owning such Bonds. <br /> <br />In the further opinion of Bond Counsel, interest on the Bonds is exempt from California <br />personal income taxes. <br /> <br />Owners of the Bonds should also be aware that the ownership or disposition of, or the <br />accrual or receipt of interest on, the Bonds may have federal or state tax consequences other <br />than as described above. Bond Counsel expresses no opinion regarding any federal or state tax <br />consequences arising with respect to the Bonds other than as expressly described above. <br /> <br />Current and future legislative proposals, if enacted into law, clarification of the Tax <br />Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to <br />federal income taxation or to be subject to or exempted from state income taxation, or otherwise <br />prevent beneficial owners from realizing the full current benefit of the tax status of such <br />interest. The introduction or enactment of any such legislative proposals, clarification of the Tax <br />Code or court decisions may also affect the market price for, or marketability of, the Bonds. <br />Prospective purchasers of the Bonds should consult their own tax advisors regarding any <br />pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond <br />Counsel expresses no opinion. <br />8.C. - Page 72