Ad Valorem Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Ad Valorem, written in plain English, along with examples of how it is used.

What is Ad Valorem?

adj. latin phrase for “according to the value.” It is used in reference to certain duties, called ad valorem duties, which are levied on commodities at certain rates per centum on their value. Ad-valorem taxes can be property tax, duties on imported items. Typically these are imposed at the time of a transaction or sometimes in connection with a significant event (eg. inheritance tax).

History and Meaning of Ad Valorem

Ad Valorem is a Latin phrase that means "according to the value." It is a term used in reference to specific duties known as ad valorem duties which are charged on commodities at a certain rate per centum on their value. These duties are essentially taxes that are imposed during the time of a transaction or big event, such as inheritance tax. Ad valorem taxes can signify any tax where the total amount collected is determined by the value of the item or property being taxed.

Ad valorem taxes are widely used throughout the world and originated from a practice that dates back to ancient Egypt. In the United States, ad valorem taxes have been legislated by Congress to impose taxes on imported goods, general sales taxes on retail goods, property taxes, and use taxes.

Examples of Ad Valorem

  1. A diamond that is valued at $50,000 is taxed at a rate of 5%, which means that ad valorem taxes on the diamond would be $2,500.
  2. A property valued at $500,000 is taxed at a rate of 1%, which equates to ad valorem taxes of $5,000.
  3. A car valued at $30,000 is taxed at a rate of 4%, resulting in ad valorem taxes on the car of $1,200.

Legal Terms Similar to Ad Valorem

  1. Excise Tax - A tax levied on certain goods and products, such as gasoline, alcohol, and tobacco, that are manufactured or consumed within the country.
  2. Custom Duty - A fee charged on imported goods by the customs authorities of a particular country.
  3. Sales Tax - A tax levied on the sale of goods and services at the point of sale.