Ad Valorem is a legal term which is a Latin word meaning “according to value”. An ad valorem tax is defined as a tax on a personal property, real estate and a specific item. The figure is expressed in a percentage form of the value and sales price. Some ad valorem taxes like sales taxes are gained in conjunction along with transaction. Another ad valorem tax like property taxes are gained in recurring basis in a percentage form based on the real value of a piece of property.
In terms of real estate, ad valorem is known as property tax. The government body of the locality imposes the tax which sets the tax rates, although, sometimes, the rate is set by a certain public unit or through public vote. A real estate is carefully assessed and assigned in a fair market value before it is employed with tax.
Land and land improvements are included in an ad valorem tax. Many localities have their own methods of determining the value of a property including an appeal process if in case the owner of the property will object on the given value as unfair. Basically, the taxes are determined in an annual basis but can be collected in an installment basis.
Another entity that requires an ad valorem tax is personal property. This type of annual tax usually affects motor vehicles. Because motor vehicles depreciate, the amount of tax paid will decrease every year if the tax rate does not fluctuate. The value of most motor vehicles is determined with the use of recognized price guides and table of values mandated in an applicable ad valorem tax code. This tax is basically paid annually.
Sales tax is employed on buying particular goods and services. The sales tax, in percentage, and the items to be taxed is determined by a government body that is responsible in charging taxes. In sales tax, the price or the value of the item is predetermined by the retailer which already includes the tax which is paid in every purchase. Most often, sales tax rate differs on the service and products taxed. Many localities exclude taxes on food while other localities also exclude taxes on clothing. These exclusions all depend on the government body acting in the locality. Exclusions of different items are carefully discussed and evaluated by the members of the body.
The collected taxes are then used to regulate the taxing body and to serve the citizens in the community. Generally, the amount of tax is computed by simply multiplying tax rate and the value of the item. All ad valorem taxes appear to be a regressive and a flat type of tax. The tax is basically not based on the generated income of the person who is paying the tax but on the exact value of the property or on the services and goods being taxed. Furthermore, regressive tax gets a bigger percentage of income to many low income individuals.