Which taxes will your client in Missouri be exempt from after purchasing a Utah municipal bond?

When a client purchases a municipal bond issued by the state of Utah, they benefit from certain tax exemptions under U.S. federal tax law. Specifically, the interest earned from municipal bonds is generally exempt from federal income tax. Additionally, because municipal bonds are issued by states, the interest income is also typically exempt from state taxes in the state where the bond is issued—Utah in this case.

Furthermore, many states offer exemptions from local taxes as well, which can extend to home state residents who buy out-of-state municipal bonds; however, the critical aspect here is the federal exemption. The bondholder is not subject to Missouri state taxes on the interest earned from the Utah municipal bond because it is considered local income for tax purposes. This provides a double layer of tax benefits: exempt from both federal taxes and Utah state taxes, while also being free from Missouri taxes.

This combination of federal tax exemption and the treatment of municipal bonds with respect to state income tax explains why the correct answer encompasses both federal and Utah taxes, providing a comprehensive tax advantage for the client.