UK Accounting Glossary
An ad valorem tax is a tax imposed on the value of assets like personal property and real estate. This form of taxation is one of the major forms of government revenue. They can also be levied as duty on imported items.
Literally, Ad valorem means “according to value” in Latin. The ad valorem tax, which is levied on ownership of assets, differs from most other taxes as it is not imposed based on transactions but on ownership. The sales tax and the value-added tax are transactional taxes while property tax is an ad valorem tax.
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 to determine the value of the 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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This glossary post was last updated: 4th February 2020.