Legal Definitions - ad valorem

An ad valoremtax is a type of tax that is calculated based on the monetary value of the item or property being taxed. The phrase itself means "according to value." This means that the more valuable an item or property is, the higher the tax will be, as the tax rate is applied as a percentage of that value. Ad valorem taxes are commonly applied to real estate, personal property, and certain goods.

• Residential Property Taxes: When you own a home, the local government typically assesses its market value. An ad valorem property tax is then calculated by applying a specific tax rate (e.g., 1.5%) to that assessed value. For instance, if a house is assessed at $400,000 and the ad valorem tax rate is 1.5%, the annual property tax owed would be $6,000. This illustrates an ad valorem tax because the amount of tax is directly proportional to the home's value.
• Import Duties on Goods: Many countries impose tariffs or customs duties on goods brought in from other countries. If a country levies an ad valorem duty of 10% on imported electronics, a shipment of smartphones valued at $50,000 would incur a $5,000 duty. This is an ad valorem tax because the duty amount is determined by the declared value of the imported goods.
• Annual Vehicle Registration Fees: In some jurisdictions, the annual fee to register a vehicle is not a flat rate but an ad valorem tax based on the vehicle's current market value. For example, if a state charges an ad valorem registration fee of 0.2% of a car's value, and your car is valued at $25,000, your registration fee would be $50. This demonstrates an ad valorem tax because the fee scales up or down with the car's depreciating or appreciating value.