Definition of Tax-Exempt Commercial Paper

Tax exempt commercial paper is basically an indirect technique of the government giving funds to an organization or any entity. It is a short term debt instrument approved by the government. This type of commercial paper is tax exempt at the federal, state, local or combination of these.

Explanation of Tax-Exempt Commercial Paper

Tax exempt commercial paper is a technique used by governments to provide funding to certain organizations and entities without having to direction provide them cash. Government does not take taxes on such commercial papers but it collect interest.

The concept can be understood through an example. Let’s suppose, a hospital requires $500,000 of funds to expand the hospital. It may issue tax exempt commercial papers and sell them to government.