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Ad Valorem Tax

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An ad valorem tax is a tax based on a calculated percentage of the value of property or goods. The "ad valorem" in ad valorem tax is a Latin term meaning "according to value." Many local governments derive a majority of their revenue from various ad valorem taxes. Legislatures set the size of the ad valorem tax rate and tax assessors determine the value of property that will be subject to such an ad valorem tax. Property taxes assessed on real estate properties are a type of ad valorem tax. An ad valorem tax can also be imposed on imported goods (i.e. import tariffs) or certain transferred property (i.e. inheritance tax). The ad valorem tax may be imposed at the time of purchase or on a periodic basis (i.e. annual basis). If imposed at the time of purchase, an ad valorem tax can be considered the equivalent of a sales tax or a value added tax (i.e. VAT).

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