Moneyzine
Contents
/Investment Guides /Tax-Anticipation Note (TAN)

Tax-Anticipation Note (TAN)

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 21st, 2023
Advertiser Disclosure

Definition

The term tax-anticipation note refers to securities issued by municipal and state governments to finance a project prior to the receipt of tax revenues. Tax-anticipation notes (TAN) are short-term debt securities that will eventually use taxes to repay expenses associated with the project.

Explanation

When municipal and state governments have a near-term need to finance an emergent project, they will oftentimes issue tax-anticipation notes, which can be used to bridge the timing gap between the collection of tax revenue and an emergent expense. When taxes are eventually collected from citizens, the funds are used to retire the note.

Also referred to as tax-anticipation warrants, these securities are typically issued for 12 months or less, and carry relatively low interest rates since earnings are usually exempt from state and federal income taxes. The agreement between the issuer and investor typically includes:

  • First Claim: when taxes are collected, the funds will be used to retire the note before diverting the money to any other expense.

  • Project / Expense: the debt is collected for a specific purpose, and the funds cannot be diverted to pay for any other project or expense.

  • Maturity: the date on which the securities mature is typically fixed, and is not altered or revised.

Tax-anticipation notes are oftentimes used to fund road construction and building repairs. These notes are one of several options municipal and state governments have at their disposal to fund a short term need. Additional sources of funds include revenue anticipation notes and bond anticipation notes.

Related Terms

fixed-income securities, variable income securities, primary securities market, secondary securities market, revenue-anticipation notes, equipment trust certificate

Explore Investing Further

Related Content

  • Biden Or Trump: Who Is Better For The Economy And Stocks?
    Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
    March 19th, 2024
  • When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
    March 14th, 2024
  • DRIP Brokers: Best Brokers for Dividend Investing for November 2024
    Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
    March 12th, 2024
  • How To Invest in Real Estate Without Becoming a Landlord
    We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
    March 6th, 2024
  • Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
    ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
    February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.