Legal Definitions - ad valorem

Definition: Ad valorem is a Latin term that means "according to the value." In taxation, it refers to taxes that are levied based on the value of the property being taxed. The tax rate is determined by the assessed or appraised value of the property.

For example, if a house is valued at $500,000 and the ad valorem tax rate is 1%, the property owner would owe $5,000 in taxes.

Another example would be a sales tax that is based on the price of the item being sold. If a state has a 5% ad valorem sales tax and a person buys a car for $20,000, they would owe $1,000 in sales tax.

These examples illustrate how ad valorem taxes are based on the value of the property or item being taxed. The higher the value, the higher the tax owed.