'Ad Valorem Taxes' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
An ad valorem tax refers to taxes that governments assess on an item like personal or real estate property. While the most usual types of such taxes prove to be real estate transaction levied ones, they can also be issued on other kinds like foreign goods in the form of import duties. Such real estate taxes are usually one of the biggest (if not the largest) sources of revenue for municipal and state governmental jurisdictions alike. These property ad valorem taxes are generally just called property taxes for simplicity.
The phrase Ad valorem is originally from the Latin for according to value. Every one of these types of taxes becomes levied on the given item they are considering based upon the ascertained value of the item. With the real estate variation, the municipality will send out its public tax assessor in order to conduct an occasional current assessment of the property value. Such assessed value allows them to decide the tax which they will levy on the owner of the property.
These Ad valorem taxes contrast sharply with other types of transaction-based taxes like the sales tax variety. Such transactional ones only become collected when a purchase or sale occurs. The Ad valorem tax is assessed each year regardless of whether or not a transaction with the real estate or personal property takes place.
There are other governmental jurisdictions besides municipalities that can levy such Ad valorem taxes. These include school districts, counties, states, and even special purpose districts which are really only special taxing districts. Owners of property can be subjected to such taxes from several entities. It might be that a county, municipality, and even state all take their share of the property holder’s wealth in the annual mandatory real estate tax collection action.
These assessments particularly on property are generally calculated once per year effective of January 1st. They simply come up with a given percentage of the assessed fair property value and multiply it to determine the mandatory bill. This assessed value is usually the fair market value of the real estate in question. With fair market value, the assessors are referring to the guesstimated property sales price if a willing buyer and seller were to engage in a voluntary transaction. This also assumes that both have access to all of the relevant facts on the property in question. In simplistic terms, it is called a reasonable price for the property.
There are many different forms of real property and personal property that can fall under the collecting umbrella of the Ad valorem tax. With real estate property, this might be houses, buildings, land, and other types of structures, along with any and all sundry improvements which individuals or businesses have made themselves to the property in question. As an example of what would constitute an improvement to a property, consider a garage that is added on after the completion of a single family home. Building a road on a tract of land is also a considerable improvement, particularly for businesses or property developers and their interests.
Where personal property Ad valorem taxes are levied on personal property, this is typically only a significant holding of personal property. It could be assessed against a boat, small airplane, or car. Sometimes this is called registration or license tag fees. With other personal property of a more incidental nature, they typically will not levy such taxes against them. Clothing and appliances are examples of items that would not typically be targeted by local governments hungry for revenue.