A type of municipal bond issued when funds are to be used for a nonessential purpose. Private activity bonds pay taxable interest unless specifically exempted by the federal government. Private activities for which tax-exempt bonds may be issued include airports, electric and gas distribution systems, government mass transportation systems, solid waste disposal facilities, and student loans. Except for nonprofit college and hospital bonds, interest from tax-exempt private activity bonds is subject to the alternative minimum tax. Also called nonessential function bond, private purpose municipal bond. Compare essential function bond. See also municipal bond.