Ad Valorem


An ad-valorem tax (Latin: by value) is a tax based on the value of real estate or personal property.

Ad-valorem taxes can be property taxes or even duty on imported items. Property ad-valorem taxes are the major source of revenues for state and municipal governments.

An ad-valorem tax is typically imposed at the time of a transaction (a sales tax or value-added tax (VAT)), but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). The alternative to ad-valorem taxation is a fixed-rate tax, in which the tax base is the quantity of something, regardless of its price. For example, in the United Kingdom, a tax is collected on the sale of alcoholic drinks that is calculated on the quantity of alcohol contained rather than the price of the drink.

Ad-valorem taxes are important to customs brokers importing goods into the United States of America. They can also be assessed on other property, such as cars, as is the case in the states of Georgia and Kentucky.

"Ad-valorem" is used frequently to refer to property values by county tax assessors. In many states, the central appraisal district (CAD) sends certified values to the county tax assessor, who determines the final tax rate to be imposed on the property. Other states use a state tax commission (STC), which notifies the appropriate taxing authorities of the assessed value of property within their billing jurisdiction.