Ad valorem is a Latin term that means “according to value.” An ad valorem tax is a tax that is based on the assessed value of an item, typically real estate or personal property. This type of tax is calculated as a percentage of the assessed value of the property, and it is commonly used by local governments to generate revenue for public services and infrastructure.

Key points about ad valorem taxes:

1. **Property Tax:**
– The most common application of ad valorem taxes is in property taxation. Real property, such as land and buildings, is assessed at its fair market value, and property taxes are levied based on this valuation.

2. **Assessment Process:**
– The assessment of property value is usually conducted by local government assessors or appraisal districts. The assessed value is an estimate of the property’s current market value.

3. **Tax Rate:**
– The tax rate for ad valorem taxes is expressed as a percentage of the assessed value. The product of the assessed value and the tax rate determines the annual property tax liability.

– For example, if a property is assessed at $200,000 and the ad valorem tax rate is 2%, the property tax would be $4,000 ($200,000 * 0.02).

4. **Variation by Jurisdiction:**
– Ad valorem tax rates can vary widely among different jurisdictions, such as cities, counties, and school districts. Different taxing entities may levy their own ad valorem taxes on the same property.

5. **Personal Property:**
– In addition to real property, ad valorem taxes may also be applied to personal property, such as vehicles, boats, and business equipment. The assessed value of personal property is similarly determined, and taxes are calculated based on that valuation.

6. **Revenue for Local Governments:**
– Ad valorem taxes are a significant source of revenue for local governments. The funds collected are used to support public services, schools, infrastructure projects, and other community needs.

7. **Challenges and Appeals:**
– Property owners have the right to challenge their property assessments if they believe the valuation is inaccurate. This process may involve filing an appeal with the local assessor’s office.

8. **Exemptions and Deductions:**
– Some jurisdictions offer exemptions or deductions that can reduce the assessed value of certain properties, thereby lowering the property tax liability. Common exemptions include those for homesteads, senior citizens, and veterans.

Ad valorem taxes play a crucial role in funding local government operations and services. Property owners should be aware of the assessment process, tax rates, and any available exemptions in their jurisdiction to understand their property tax obligations.