Ad Valorem Tax

An ad valorem tax is any tax based on the value of property, whether personal property or real estate. (Value here refers to the value as assessed by the taxing agency.) Although annual real estate taxes are what might come to mind first, ad valorem taxes include taxes assessed at the time property is transferred (including sales taxes, inheritance taxes, and tariffs).

What makes a tax an ad valorem tax is that it is the value of the item that determines the amount of the tax to be paid, as opposed to a fixed rate tax. (In a fixed rate tax, the amount of the tax is based on the quantity of the item sold.) So if gasoline is taxed at 1% of the retail price of gas, that would be an ad valorem tax; the amount of tax you pay would fluctuate as the price of gas changes. (A 50 cent per gallon tax on gas would be a fixed rate tax, not an ad valorem tax.)