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Ad Valorem Tax Meaning & Definition

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Definition of Ad Valorem Tax

An Ad Valorem Tax is a tax based on the value of the subject property. Ad Valorem taxes are most often used in the United States to determine the amount of a home owner’s property taxes.

Applying "Ad Valorem Tax" to Securities Exams:

Ad valorem taxes are another term for property taxes. When a municipality issues a general obligation bond that bond is backed by the full faith and credit of the municipality. In other words, voters’ tax dollars are used to pay of the bond. Cities and counties get most of their tax revenue from property or ad valorem taxes, whereas states get most of their tax revenue from income tax and sales tax.

The unit of measurement used to calculate ad valorem tax is known as the “mill rate”, which is equal to .001. For example: if a property, assessed at $100,000, is being taxed at a rate of 9 mills (.009) the tax payer would owe $900 that year in ad valorem tax.

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