Legal Definitions - TAB

TAB stands for Tax-Anticipation Bill.

A Tax-Anticipation Bill (TAB) is a short-term debt instrument issued by a government entity, such as a state, county, or municipality. Governments use TABs to raise funds in anticipation of future tax collections. This allows them to cover immediate expenses or manage temporary cash flow shortages that arise when expenditures need to be made before expected tax revenues, like property taxes or income taxes, have been fully collected. TABs are typically repaid once the anticipated tax revenues are received.

Here are some examples to illustrate how Tax-Anticipation Bills work:

• Example 1: City Road Repairs

  Imagine a city experiences an unusually harsh winter, causing significant damage to its roads in February. The city needs to fund emergency repairs immediately to ensure public safety and smooth traffic flow. However, the bulk of its annual property tax revenue, which is a primary source of funding, isn't due until July. To avoid delaying critical repairs, the city council decides to issue Tax-Anticipation Bills. These bills provide the necessary funds to start repairs in March. Once the property taxes are collected in July, the city uses those revenues to repay the TABs, plus any accrued interest.

  This example illustrates how a TAB helps a government entity bridge a temporary gap between urgent spending needs and the future collection of its primary tax revenues.

• Example 2: State Education Funding

  A state government is committed to disbursing funds to its public school districts at the beginning of the academic year in September to ensure schools have operating budgets. However, a significant portion of the state's income tax receipts, which fund education, won't be fully collected until the following April's tax season. To ensure schools receive their funding on time without waiting for future income tax collections, the state treasury might issue Tax-Anticipation Bills. These bills provide the immediate cash flow needed for the September disbursements. When the income tax revenues are fully realized in April, the state uses those funds to retire the TABs.

  This example demonstrates how a TAB allows a state to meet its financial obligations promptly, even when the corresponding tax revenues are scheduled for later collection.

• Example 3: County Public Health Initiative

  A county government plans to launch a new public health initiative focusing on preventative care, with the program scheduled to begin in January. While the county anticipates significant sales tax revenue throughout the year, sales tax collections are typically lower in the first quarter and peak during the summer months. To ensure the health initiative can start on schedule and operate effectively from day one, the county may issue Tax-Anticipation Bills. This provides the upfront capital needed for staffing and resources during the initial months. As sales tax revenues increase later in the year, the county uses the surplus to pay back the TABs.

  This example shows how a TAB can be used to manage seasonal fluctuations in tax revenue, allowing a government to fund ongoing programs without interruption.