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Ad valorem tax

Ad valorem tax Definition

An Ad valorem tax is a tax based on the assessed value of real estate or personal property. In other words ad valorem taxes can be property tax 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 (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, where 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.




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