What is the definition of Ad Valorem Tax?

Ad valorem tax is defined as a levy on real property based on its assessed value. This means that the tax amount is determined by the value of the property, which is typically appraised periodically. The higher the property value, the greater the tax obligation owed by the property owner. This form of taxation is often applied to real estate, including land and buildings, making it a key component of local government revenue used to fund public services.

This type of taxation contrasts with other tax forms, such as income tax, which is based on earnings, or transactional taxes that apply each time a transaction occurs. Additionally, fixed fees for services are charges that do not vary based on property value or income but are predetermined amounts for specific services provided by the government. Understanding ad valorem taxes is essential for grasping how local governments fund infrastructure, schools, and other community services, as these taxes are critical for maintaining fiscal health at the local level.