If you spend any time dealing with property tax, you’re probably used to hearing “ad valorem” and “property” tax used interchangeably. Ad valorem taxes are the primary means by which local governments raise funds, and their history goes back to ancient times.
Ad Valorem Definition
Ad valorem translates from Latin to “according to value,” so it makes sense that ad valorem taxes are based on the assessed value of the item in question. You may be most accustomed to hearing ad valorem in reference to property taxes, such as real estate or personal property. But there can be ad valorem taxes levied in other circumstances, such as transactional taxes or value added taxes. In essence, not all ad valorem taxes are property taxes, but all property taxes are ad valorem taxes.
Origin of Ad Valorem Taxation
Have you ever wondered why some of our tax terminology is in Latin? The short answer is that the Roman legal system had a profound hand in shaping the legal systems of many other countries and cultures, including our own. Even the word “tax” itself comes from the Latin word taxare, which means “to assess.”
The earliest known tax records date from 6000 BC, but Alexander the Great was one of the first leaders to use property taxes for public works. His conquests were in part successful because he not only lowered but also redirected property tax collections from the treasury to community improvements. Later, Augustus Caesar established tax rules that used flat land rates to assess property based on its maximum production value.
Ad valorem taxes continued as a primary source of government funding throughout the medieval and colonial periods, and the idea of property tax made its way to the present-day United States as settlers from Europe arrived.
Beginning of Ad Valorem Taxation in the United States
When America was still a collection of colonies, the ways that land was taxed varied greatly from jurisdiction to jurisdiction. Generally, taxes were levied at fixed rates rather than value-based rates, and no states required uniform rates on property. This first began to shift in 1818, when Illinois passed the first uniformity clause, which required that taxes be levied in accordance with a property’s value. As the United States grew and expanded west, this ad valorem tax system was well suited to support rural communities, and taxing tangible land made it much easier to properly allocate funds raised.
Reforms to Ad Valorem Taxation
Naturally, as states continued to implement value-based property taxes, there was a great deal of variation from state to state (and even within states), and reform efforts followed. One common reform was creating exemptions for specific types of property. An exemption you’re probably familiar with is the homestead exemption, which gained widespread implementation after the Great Depression. This exemption shielded owner-occupied residences from taxation. But this also received criticism, since it more deeply reduced the income of those jurisdictions whose tax base was mostly residential properties.
After World War II, tax protests spread across the country in a period often referred to as the Tax Revolt. The most well-known result of the Tax Revolt was the passage of Prop 13 in California, which imposed sharp limits on when and how properties could be assessed. In this year’s election, California will vote on Prop 15, which would reduce the effect of Prop 13’s limitations if passed.
How Ad Valorem Taxes Are Levied Today
Today, when uniformity isn’t strictly imposed across a jurisdiction, it usually is the result of poor assessment and not the property tax statutes themselves. Most states have a central appraisal authority that shares valuations with local governments so they can set tax rates and collect property taxes. Property taxes are then calculated by multiplying the assessed value of the property by the set millage rate. As with most legal and financial institutions in this country, there is great variation from state to state, county to county, city to city, and even within smaller local jurisdictions.
Questions About Ad Valorem Taxes?
At PTX, we’re in touch with local assessors and collectors on a daily basis, so we’re familiar with how complicated ad valorem taxes can be. To help you stay ahead of mail dates and deadlines, we post the latest property tax calendar updates every month.
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