Legal Definitions - TAN

TAN stands for Tax-Anticipation Note.

A Tax-Anticipation Note (TAN) is a type of short-term debt instrument issued by a state or local government entity. Governments issue TANs to raise funds quickly to cover immediate expenses, with the expectation that these notes will be repaid using tax revenues that are anticipated to be collected in the near future. Essentially, it's a way for a government to borrow money for a short period, using its upcoming tax collections as collateral for the loan.

• Example 1: City Infrastructure Project

  The City of Springfield plans to begin a critical road repair project in January, but the bulk of its property tax revenues, which fund such projects, are not collected until April. To avoid delaying the project and to ensure contractors can be paid on time, the city issues Tax-Anticipation Notes in December. These notes mature in May, allowing the city to repay the borrowed funds and interest using the property tax revenues received in April.

  This illustrates a TAN because the city is borrowing money for a short term, anticipating repayment from specific future tax collections (property taxes) to bridge a temporary cash flow gap for an essential service.

• Example 2: State Employee Payroll

  The State of Westmont experiences a temporary dip in its general fund balance in late summer, just before the peak season for state income tax filings begins in the fall. To ensure there are no disruptions in paying state employee salaries and essential operational costs during this period, the state's treasury department issues Tax-Anticipation Notes. These notes are structured to be repaid once the substantial income tax receipts start flowing in during the autumn months.

  Here, the TAN allows the state to maintain its financial obligations (like payroll) by borrowing against the predictable future inflow of income tax revenues, demonstrating its use for managing seasonal cash flow.

• Example 3: School District Supplies

  A local school district needs to purchase new textbooks and educational supplies for the upcoming academic year, with orders due in July. However, the district's primary funding comes from local education taxes, which are primarily collected in September and October. To ensure the supplies are ordered and delivered before classes begin, the school district issues Tax-Anticipation Notes. These notes are then repaid using the tax revenues collected in the fall.

  This example shows a TAN being used by a smaller government entity (a school district) to fund necessary expenditures in advance of its regular tax collection cycle, ensuring continuity of services.