Legal Definitions - ad valorem tax

An ad valorem tax is a type of tax that is based on the value of a product or service. It is a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. This means that the amount of tax you pay is a percentage of the value of the item being taxed.

For example, if you buy a car for $20,000 and the ad valorem tax rate is 5%, you would have to pay $1,000 in taxes. Similarly, if you own a house that is worth $500,000 and the ad valorem tax rate is 1%, you would have to pay $5,000 in taxes.

Ad valorem taxes are commonly used for property taxes, sales taxes, and import/export taxes. They are often used to generate revenue for local governments, such as cities and counties, to fund public services like schools, roads, and public safety.

Overall, ad valorem taxes are a way for the government to collect money from citizens and businesses based on the value of what they own or purchase.