The word “Ad Valorem “literally means “according to value’. The ad valorem tax is a kind of tax that is imposed on the real value of a personal property or real estate. This is a general way in which most people define ad valorem. Some websites may define ad valorem as a type of sales tax that is applied when an agent is selling a house or piece of property. Some may also define ad valorem tax as one which is applied annually instead of adding it to the financial value of the house. Some may also define ad valorem tax as a sales tax, expatriation tax, property tax or a value added tax. In other words, you can also define ad valorem tax as one that is applied on imported items in the form of customs duty. You can also define ad valorem tax as one that is not specific and is placed as a percentage on the total assessed value of the house.
There are a number of ad valorem levies; they are placed on the total value of the goods, the first ad valorem levy is placed on cigarettes. The tobacco industry has to pay an approximate of 50% on the retail price as stated on the cigarette packs. If the price of an item with an ad valorem levy goes up, or increases, then the amount of tax that is to be paid on the said item will also increase. The next example of ad valorem levy can be alcoholic beverages; all alcoholic beverages are taxed according to the number of units that are being purchased. There is also an ad valorem levy on property, home owners have their properties assessed by a tax official; they then have to pay a property tax on the total value, which is incurred when they either buy or sell the property. This property tax is also payable on an annual basis. Value added taxes or VAT and import taxes or duties are also good examples of ad valorem levy. For ad valorem levy, only the value if the item is used as sole criteria for determining the amount of tax that is to be paid. Usually taxes on certain items are based on factors like height, weight, size and/or quantity.
Taxes are a source of government revenue; they are levied on almost all products, services, incomes. Excise taxes are levied on certain occupations and on the manufacturing, selling and consuming of certain items. The first main difference in the ad valorem excise tax is that ad valorem in applied only on the value of the item, while excise taxes are levied on certain items. Another contrast in ad valorem excise tax is that ad valorem is placed in the form of Value Added Taxes, property taxes. While excise taxes are placed ht manufacturing, selling and consumption of certain items like cigarettes, alcoholic beverages. Another way to differentiate ad valorem excise tax is that ad valorem taxes are not specific, they only from a percentage of the total value. Excise taxes, on the other hand are fixed and indirect taxes that are levied on the sale price on products. One more characteristic of ad valorem excise tax is that excise taxes are imposed by State and Federal authorities while ad valorem taxes are imposed on the total monetary value of the product. It can also be levied by people who offer their professionals services for a stated sum such as lawyers, doctors, hotels and restaurants.