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What Is An Ad Valorem Tax?

Ad Valorem, term is derived from the Latin word, meaning “according to value”. An Ad Valorem denotes a tax, duty, fee or commission that is calculated as a percentage of the sales price or value. An Ad Valorem tax is a tax based on the assessed value of real estate or personal property or a specific item. In other words ad valorem taxes can be property tax or even duty on imported items. Duties, taxes on goods imported or brought from a foreign country, are either Ad Valorem or specific. An AdValorem duty is one in the form of a percentage on the value of the property, unlike a specific duty that is a fixed sum imposed on each article of a class. In real estate, the ad valorem tax is commonly referred to as property tax.


Property taxes that are imposed by the states, counties, and cities are the most common type of Ad Valorem taxes which are collected on a recurring basis as a percentage of the value of a piece of real estate. Property ad valorem taxes are the major source of revenues for state and municipal governments. Ad Valorem tax is typically imposed at the time of transaction such as Sales tax or Value added tax(VAT), but it may be imposed on an annual basis (real or Personal Property Tax) or in connection with another significant event (inheritance tax or tariffs).

All ad valorem taxes are flat, or regressive, taxes. The tax is not based on the income of the person paying the tax, but on the value of the property, item, or service being taxed. A regressive tax takes a larger percentage of income from low income earners.

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