special tax bond

Special Tax Bond

A type of bond that is repaid by revenues derived from taxation of a particular activity or asset. These bonds are repaid with either excise taxes, special assessment taxes or ad valorem taxes.

Notes:

For example, say a special tax bond is be issued to fund the building of a new hospital wing dedicated to the treatment of cancer. An excise tax levied on cigarettes at the point of sale would be used to pay the debt to bondholders.

Another example of a project for which a special tax bond may be issued is the building of a new freeway. People who live in areas would be assessed an increased property tax based on their likelihood of using the new road.

See also: Ad Valorem Tax, Bond, Municipal Bond, Private Purpose Bond, Taxable Bond

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special tax bond

A municipal bond with debt service limited to the revenues generated by a special tax. A bond issue to finance a convention center with the interest and principal payments limited to taxes received from a levy on motel and restaurant sales is an example of a special tax bond. Certain special tax bonds are also secured by the full faith and credit of the issuer; they have the additional security of being general obligations.