26 U.S.C. § 115

Income of States, municipalities, etc.

Gross income does not include—

(1)

income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia; or

(2)

income accruing to the government of any possession of the United States, or any political subdivision thereof.

( Aug. 16, 1954, ch. 736 , 68A Stat. 35 ; Pub. L. 94–455, title XIX, § 1901(a)(19) , Oct. 4, 1976 , 90 Stat. 1766 .)