DEFINITION of '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.

BREAKING DOWN 'Special Tax Bond'

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.

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