Dividends from Tax-Exempt Bonds Are Taxable: California Court

California’s highest court won’t review a ruling that interest on tax-exempt bonds paid as dividends to investors is taxable income.

The Supreme Court’s decision Nov. 20 not to take the case upholds an August appellate court ruling against Ronald D. Mass and Pamela S. Mass, who invested in the Blackrock Insured Municipal Term Trust Inc., a regulated investment company. At issue is $7,384 in tax on interest received in the 2010 tax year.

The lower court rejected the taxpayers’ argument that because the California Constitution makes interest from government bonds exempt from tax, the Franchise Tax Board ...