What does the term 'ad valorem tax' refer to?

The term 'ad valorem tax' refers to a tax that is based on the value of an item. This type of tax is often applied to property, sales, and other transactions where the tax amount is calculated as a percentage of the item's value.

For instance, when buying a car, an ad valorem tax would calculate the tax based on the purchase price of the vehicle. This method contrasts with a fixed tax rate that applies uniformly regardless of the value or service, and it is also distinct from taxes based on income, such as those on salaries and wages.

Understanding ad valorem taxes is important in numerous fields, including environmental health and safety, as these taxes can influence decisions regarding property value assessments and funding for local services, environmental initiatives, and infrastructure improvements.