Valorem tax, also called “ad valorem tax,” is a type of tax that is based on how much something is worth. “Ad valorem” comes from the Latin language and means “according to value.” Governments at different levels, like local towns, often use this tax to raise money for public services and infrastructure.
The most important thing about an ad valorem tax is that it is based on the worth of the thing being taxed. For example, the assessed worth of a building is often used to figure out the property tax. The tax bill will be bigger if the house is worth more. In the same way, sales taxes in some places may be based on the price of the things or services being bought.
Valorem taxes are usually used to pay for local services like schools, parks, roads, public safety, and public parks. The money from these taxes can be set aside for a certain reason or put into a general fund that can be used for different things as needed. Tax rates and ways of figuring them out depend on where you live and what kind of land or object is being taxed.
One benefit of valorem taxes is that they give governments a pretty stable way to get money. As land prices and economic activity change, so do the taxes collected. Also, since valorem taxes are based on the value of the land or object, they can be seen as more fair. Most of the time, people with more valuable homes or assets pay more taxes.
But taxes based on value can also be a source of disagreement. Accurately figuring out how much something is worth can be hard, and disagreements can happen over prices. Some people also say that valorem taxes are unfairly hard on people with low incomes or few resources because they may own land or assets with high prices but have trouble paying the taxes.
In short, a valorem tax is a type of tax that is based on how much something is worth. Governments use them to make money to pay for public services and facilities. Even though they provide a steady source of income and can be seen as fair, there can be disagreements about how much they are worth and complaints about how they affect certain people or groups.