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What is a Tax Anticipation Note?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 July 2014
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Tax anticipation notes are one type of notes that are issued by municipalities. Generally, the tax anticipation note is issued by a state or local government with the understanding that a certain amount of taxes will be collected within an appreciable period of time. The note allows the municipality to fund capital projects now rather than waiting for the actual collection of the taxes.

Sometimes referred to as a tax anticipation warrant, the tax anticipation note is understood to be a short-term debt obligation. That is, the municipality is expected to have enough revenue in hand to cover the face value of the debt within a relatively short period of time. Generally, debt obligations of this nature are expected to be paid in full within no more than one calendar year.

When a tax anticipation note is issued, the municipality typically is committing to three basic covenants. First, the face value of the note will represent funds that are channeled into a specific capital expenditure, such as the construction of new roads or the repair of existing roads. The funds will not be diverted to other projects or used for general operating budget shortfalls.

Second, the maturity date of the tax anticipation note is considered solid. The date is not moved, revised, or otherwise altered in any way. If necessary, the current tax anticipation note is paid off early and a new note is issued that carries a different maturity date.

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Last, the tax anticipation note has first claim on any tax collections that take place. This means that before any portion of the collected taxes are used for other budget items, the monthly allotment set aside to allow for the timely retirement of the debt obligation created by the tax anticipation note is covered. In short, the tax anticipation remains a priority until the debt is discharged on or before the date of maturity.

A tax anticipation note is often in the best interests of the citizens residing in the issuing municipality. The ability to finance large projects by the issuance of this sort of note makes it possible to begin work immediately. This means that citizens can begin to derive benefits from the project sooner rather than later.

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