At which levels is the interest on corporate debt securities subject to taxation?

Interest on corporate debt securities is subject to taxation at the federal, state, and local levels. This is because corporate debt interest is treated as ordinary income for tax purposes, which means it falls under the general taxation rules applicable to most forms of income.

At the federal level, interest income is fully taxable and must be reported on the taxpayer's income tax return. Similarly, many states impose their own income taxes on residents, which generally apply to interest income, including interest earned from corporate bonds. Furthermore, some local jurisdictions may also impose taxes on interest income.

This comprehensive taxation framework makes it clear why the correct answer reflects that interest on corporate debt securities is taxable at all three levels—federal, state, and local. Understanding this tax obligation is crucial for investors as it impacts their net returns from investing in corporate bonds.