An ad valorem tax is any tax levied on the value of property. If the county assesses your home's market value, then levies a property tax based on that value, you're paying an ad valorem tax. This is quite different from sales taxes on things that you buy or income taxes on your salary. From one state and locale to the next, ad valorem taxes vary, both on the type of property that is taxable and the rate at which you pay.
Most homeowners pay property tax based on an assessment of the value of their homes, land, attached or separate structures and improvements. The assessment may change from one year to the next, and you can dispute that assessment by filing an appeal with the local assessor's office. The actual tax rate is a different calculation and is set by the local taxing authority. You pay ad valorem property taxes for the operating costs of schools, fire and police departments, road maintenance, parks, trails, streetlights and other public amenities. Every homeowner within the taxing district pays the same rate, but the more your house is worth, the more you'll be paying.
Some states also levy personal property taxes on cars, boats, jewelry, antiques or other valuables, based on an appraisal of the property's value. The taxing authority must use appraisers to set the value, which is usually defined as the amount a willing buyer will pay to a willing seller. If you don't pay the tax, then the taxing authority can put a tax lien on the property, which means that if you sell it, you will have to pay the unpaid taxes out of the money you receive. Certain property also can be seized for unpaid taxes, although most state laws set an exempt amount for items such as a first car.
Tax Rates and Millage
State law must authorize cities, counties and school districts to levy ad valorem property taxes. For each tax period (usually a year) these bodies set a millage rate, which is the number multiplied by the value of your property to get the tax rate you'll have to pay. A "mill" is one-thousandth of a dollar; therefore a millage rate of 10 would mean you would pay tax at the rate of 1 percent of your property's value. Most state laws set a maximum millage rate; in Florida, for example, the state constitution limits county taxes for general operations to 10 mills as of publication. In most states, any exceptions must be approved by voter referendum.
Your property tax bill arrives from the local taxing authority with a breakdown of all the ad valorem taxes levied on your property. These include taxes you'll be paying to the county, city and school district. The statement also may include special assessments for new construction or local street repairs; sewer, water or light service; and any bond issues the local authorities have agreed to pay out of tax revenues. Because many cities and counties don't collect income or sales taxes, ad valorem taxes on property are the main way for these authorities to meet expenses.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.