An ad valorem tax is a tax based on the value of real estate or personal property. It is more common than a specific duty, a tax based on the quantity of an item regardless of price.The funds raised by such taxes are used to support the workings of government. Many provincial governments have an ad valorem tax code, and municipalities have their own ad valorem taxes, such as additional property taxes for people within city limits. The rate of taxation may be determined by the legislature, or by popular vote; the citizens of a town, for example, could vote for an extra quarter percent of sales tax to support a civic initiative. This is why sales taxes can vary significantly from city to city, as retailers must collect the state or provincial government’s share, and the share demanded by the municipality.
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 (real or personal property tax) or in connection with another significant evenA tax based on the assessed value of real estate or personal property. Ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenue for state and municipal governments.
Municipal property ad valorem taxes are also known as “property taxes”.
The phrase ad valorem is Latin for “according to value”. In the case of municipal property taxes, property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax, which is levied on the owner by his or her municipality. Ad valorem taxes are incurred through ownership of an asset, in contrast to transactional taxes, such as sales taxes, which are incurred only at the time of transaction.
Legislatures occasionally battle over ad valorem taxation. Some people feel that such taxation is a very efficient and effective way to quickly raise money to fund various government enterprises, while others argue that these types of taxes penalize people for buying or maintaining property of value. Conservatives tend to favor a reduction in ad valorem taxes, while liberals often push for a maintenance or increase, under the argument that these funds are needed to support the smooth operation of the government.