Which statement correctly describes ad valorem taxes?

Which statement correctly describes ad valorem taxes?

• A. Based on the value of items
• B. Based on the weight of items
• C. Based on the quantity per unit
• D. Based on cost of production

Answer: (C)

Ad valorem taxes are charged according to the value of the item or property, usually as a percentage of that value. The Latin phrase ad valorem means “according to value.” This means the tax rises as the value rises and falls as value falls, which is why goods taxed with VAT, sales tax, or a property tax are described this way. It is not tied to weight or to the number of items, which would be per-weight or per-unit (specific) taxes, nor is it determined by the cost of production. So the correct description is that the tax is based on value.

Ad valorem taxes are charged according to the value of the item or property, usually as a percentage of that value. The Latin phrase ad valorem means “according to value.” This means the tax rises as the value rises and falls as value falls, which is why goods taxed with VAT, sales tax, or a property tax are described this way. It is not tied to weight or to the number of items, which would be per-weight or per-unit (specific) taxes, nor is it determined by the cost of production. So the correct description is that the tax is based on value.