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Ad valorem tax

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An ad valorem tax (Latin for according to value) is a tax based on the value of real estate or personal property. An ad valorem tax is typically imposed at the time of a transaction (a sales tax), but it may be imposed on an annual basis (real or personal property tax) or in connection with another significant event (inheritance, surrendering citizenship, or tariffs).

Sales tax

Main article: Sales tax

A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).

Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, and is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business who purchases materials for production or ordinary operating expenses prior to delivering a service or product to the marketplace. This prevents so-called tax "cascading" or "pyramiding," in which an item is taxed more than once as it makes its way from production to final retail sale. There are several types of sales taxes: Seller or Vendor Taxes, Consumer Excise Taxes, Retail Transaction Taxes, or Value-Added Taxes.

Value-added tax

A value-added tax (VAT), or goods and services tax (GST), is tax on exchanges. It is levied on the added value that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer. A VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer). To avoid double taxation on final consumption, exports (which by definition are consumed abroad) are usually not subject to VAT and VAT charged under such circumstances is usually refundable.

Property tax

Main article: Property tax

A property tax, millage tax is an ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. There are three species or types of property: Land, Improvements to Land (immovable man made things), and Personalty (movable man made things). Real estate, real property or realty are all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.

Application of tax in U.S.

Ad valorem duties are important to those importing goods into the United States of America because the amount of duty owed is often based on the value of the imported commodity. Ad valorem taxes (mainly real property tax and sales taxes) are a major source of revenues for state and municipal governments, especially in jurisdictions that do not employ a personal income tax. "Ad valorem" is used frequently to refer to property values by county tax assessors. In many states, the central appraisal district sends certified values to the county tax assessor, who determines the final tax rate to be imposed on the property. Other states use a state tax commission, which notifies the appropriate taxing authorities of the assessed value of property within their billing jurisdiction. Ad valorem tax relates to a tax with a rate given as a proportion of the price. An example would be the state of Tennessee having a 6% sales tax on the purchase of food. Virtually all state and local taxes on restaurant meals and clothing are ad valorem.

County tax assessor is a misnomer. The assessor's do not tax nor do they assess a tax, the assessor's job is to value property (real estate, personal property etc). In actuality the "tax assessor" is more accurately defined as the "property assessor." After the property's value is determined by the assessor a tax rate is determined by the appropriate taxing authority which in turn calculates the tax due by the property owner. The tax is then collected by the tax collector.

Portions of this article were adapted from Wikipedia.