To add more context: yes, US Treasuries are exempt from state tax, and municipal bonds are tax exempt too. It's pretty rare for startups to hold them directly; they usually hold money market funds. It varies between different MMFs, but they can be partially state tax-exempt depending on what percentage of the underlying assets are federal bonds.[1] For instance, Vanguard shows you how much of each of their funds is tax-exempt here: https://investor.vanguard.com/content/dam/retail/publicsite/...
However, this tax exemption is usually priced in: muni bond funds, and MMFs that hold lots of tax-exempt assets, tend to return less than funds which are not tax exempt. For the majority of startups that operate at a net loss, tax-exempt funds are probably a bad choice, since you're earning less yield and the tax exemption likely doesn't affect you.
[1] The rules around this also varies from state to state; for instance, in CA, CT, and NY, you can only get any tax exemption if a fund is at least 50% tax-exempt in each quarter of a given year.
No haha they are not exempt. But neither are money market funds, which are currently the most popular choice for startups and SMBs
US treasuries are exempt from state tax but you didn't mention them. And Municipal bonds have no taxes but a lower rate.
To add more context: yes, US Treasuries are exempt from state tax, and municipal bonds are tax exempt too. It's pretty rare for startups to hold them directly; they usually hold money market funds. It varies between different MMFs, but they can be partially state tax-exempt depending on what percentage of the underlying assets are federal bonds.[1] For instance, Vanguard shows you how much of each of their funds is tax-exempt here: https://investor.vanguard.com/content/dam/retail/publicsite/...
However, this tax exemption is usually priced in: muni bond funds, and MMFs that hold lots of tax-exempt assets, tend to return less than funds which are not tax exempt. For the majority of startups that operate at a net loss, tax-exempt funds are probably a bad choice, since you're earning less yield and the tax exemption likely doesn't affect you.
[1] The rules around this also varies from state to state; for instance, in CA, CT, and NY, you can only get any tax exemption if a fund is at least 50% tax-exempt in each quarter of a given year.