State of Idaho Tax Anticipation Note

Each year since 1982 the Idaho State Treasurer has issued a State of Idaho Tax Anticipation Note "TAN". These notes are municipal securities that are one-year, interest-bearing debt obligations of the State of Idaho. The distinguishing characteristic of a municipal security is that the interest earned on them is exempt from federal income tax. Idaho municipal securities are further exempt from state income taxes. Idaho’s TANs are issued in multiples of $5,000 which is the amount paid when the bond matures. Idaho TANs are issued with a fixed interest rate.

TANs are issued by states and municipalities in order to finance current operations in anticipation of future tax receipts. The State of Idaho’s disbursements exceed the state’s revenue collections during the first half of our fiscal year (July-December). The TANs are issued to meet the anticipated cash flow requirements resulting from the imbalance in timing between receipts and expenditures. Cash flow requirements are forecasted to determine the size of the TAN.

TAN Proceeds

The TAN Proceeds are the funds that the Idaho State Treasurer receives from the sale of the TAN notes on or around July 1st. These monies are not generally needed immediately and are invested in taxable bond securities allowable under the Idaho Investment Code. Because of the difference between the interest rate on the tax-free municipal issue and the taxable bond issue, the Idaho State Treasurer is able to recognize net interest revenue also known as positive arbitrage.

TAN Redemptions

The TAN Redemption is an account in which incoming tax receipts are set aside to payback the TAN note holders. This account starts funding in January and is generally fully funded by the middle of April. The securities held in this account mature on the same date as the TAN notes. The principal from these securities is used to payback the notes, and the interest from these securities goes into the general fund.