Special Tax Bond Definition

A Special Tax Bond is a bond, usually issued by a government entity. It uses a particular tax to pay off creditors.

Special Tax Bond Meaning

Local governments like cities or states normally use special tax bonds. A government entity will use a special tax bond for city or state management. Tax bond payments are usually imposed on the general population through a property tax or special income tax. This depends on the city or state. Once these payments are collected, they are sent off to creditors who provided funding for the particular job.

Special Tax Bond Example

For example, Middleland decided that it would like to build a large park in the middle of the city. Middleland thus decided to issue special tax bonds to gain financing for the project. They used the financing to accomplish the following:

• Tear down older junky houses
• Plant grass in the cleared out area
• Build a running track as well as a new playground

As the land is being developed, Middleland imposes a special tax on the population in the form of extra property taxes. Once the city makes these collections, they are then sent to creditors to make coupon payments as well as principal when the project is all finished.

See Also:
Ad Valorem Tax
Direct Tax
Marginal Tax Rate
What is a Bond?
Coupon Rate Bond