What Is an Ad Valorem Tax? Let's See If It Applies to You

If you own property, you need to know what ad valorem tax is, and the difference between ad valorem tax and property tax. We've got answers for you.


Feb. 15 2023, Published 9:55 a.m. ET

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If you were recently informed you owe an ad valorem tax, you’re probably wondering what an ad valorem tax is. Why do you need to pay an ad valorem tax? We've got all the details about ad valorem tax. Keep reading for all the information and see if ad valorem tax or taxes apply to you.

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What is an ad valorem tax?

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An ad valorem tax — which is Latin for "according to value" — is a tax that’s based on a percentage of the value of an item or property, commonly used at the city and state levels. An example of an ad valorem tax is the tax you pay on your car.

Ad valorem property taxes are typically one of the most important sources of revenue for state and local governments. They're more commonly referred to as a property tax.

What is the difference between ad valorem tax and property tax?

A municipal ad valorem tax is often referred to as a property tax and a property tax is an ad valorem tax that someone who owns real estate or other property pays based on the value of their real or personal property. These property owners may also have to pay ad valorem taxes by a municipality and a county.

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To break down the difference even more, ad valorem taxes are the taxes paid on the value of the property that’s being taxed, and they are usually one of the main sources of income for state and local governments. So, for example, when you purchase an air fryer, the 5.5 percent sales tax that’s added to the total price is the ad valorem tax.

There are also non-ad valorem taxes that refer to a service charge or fee to cover costs associated with services related to the property owned, like trash removal.

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How much are ad valorem taxes?

Ad valorem taxes vary based on where you live, with states like New York, Illinois and New Hampshire topping the list, but it also depends on your county. That means a property owner in New York might end up paying a higher rate than someone in West Virginia because New York has historically high property taxes.

But to find out how much ad valorem tax might cost, you’ll need to multiply the value of your property by the effective tax rate.

Do I need to pay ad valorem taxes?

Yes, you need to pay ad valorem taxes, just like you need to pay the rest of your taxes each year. If you don’t pay your ad valorem taxes by the deadline, you will incur additional fees and penalties until it's paid off.

To find out how much tax you’ve paid on a purchase you’ve already made — like your car — look at the bill of sale. If you’d like to know how much the taxes will cost before it’s assessed, you’ll have to research your local tax rate, and use their tax rate calculator.

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