Definition:
TAN in short defines Tax anticipation notes which are generated by municipalities. Tax anticipation notes are generally issued by state government or the local government which specifies that some amount of taxes will be collected by understanding within certain span of time. By taking this notes the municipality finances the capital project or some big projects rather than paying heed to the collection of taxes. Tax anticipation notes is an obligatory term that is needed by the government for temporary financing purposes. Taxes, revenues or some other long term future bonds are used to cover the principal payoff. Tax anticipation notes have the single maturity year or less and is payable at the time of maturity rather than half –yearly. Whenever this type of anticipation notes is issued by the municipality, generally there are three basic agreements which are as follows:-
1. The face value of the notes will represent funds which are definitely used for capital expenditure such as repairing of old roads or the construction of the newly proposed roads. The funds are not allowed to be used for other projects. It is also not used for budget shortfalls.
2. The maturity date of the tax anticipation is very much firm, there is no alternatives for other dates. Even the dates cannot be moved or changed as per requirements by any means. It is possible to pay the anticipation note earlier and the new maturity date can issued for the new note.
3. Before the end of the maturity date or until the debt is paid off the anticipation note will be in action.
Varieties of anticipation notes:
There are four major varieties of anticipation notes. Tax anticipation notes (TANs), which are used in taking up of future tax collections. Revenue anticipation notes (RANs), which are issued with the payment of the debt by the anticipation of non tax revenue. Tax and revenue anticipation notes (TRANs); the combination of the revenues and taxes pays it. Bond anticipation notes (BANs), which are issued by the municipality while expecting the long future term bond in order to pay the note at the maturity time. BANs also acts as a bridge loans.
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