Reciprocal Immunity Doctrine 

The doctrine that many believe provides the constitutional basis for the exemption from federal taxation of the interest earned on municipal securities.
The doctrine holds that the states are immune from taxation by the federal government and vice versa. The advocates of tax-exemption for bonds believe that a tax on the interest income a taxpayer receives constitutes a tax on the issuer of the bonds.

Remarks: Bond funds including mutual funds (open-end and closed-end, actively managed and indexed), exchange-traded funds and unit investment trusts offer a convenient and affordable way to invest in a diversified portfolio of bonds, but a bond fund investment can differ from a bond investment in ways that are important to understand.