Ad valorem property taxes are levied on real or personal property by local government units including counties, municipalities, school districts, and special taxing districts. Ad valorem means a tax on goods or property expressed as a percentage of the sales price or assessed value.

What Property is Taxed?

Taxes on Real Property. "Real property" for property tax purposes generally includes the land, building, structures, and all improvements or fixtures annexed to the building or structure. The definition of real property often excludes business personal property such as tools, implements, machinery, and equipment attached to or installed as real property for use in the business.

Taxes on Personal Property. Taxing authorities may also tax personal property. The items taxed vary by jurisdiction but most jurisdictions do not impose property taxes on household goods, inventories, and intangible personal property such as tax and bonds. Motor vehicles, however, are often subject to ad valorem taxation.

Determining the Amount of Ad Valorem Taxes

Generally ad valorem taxes are assessed as of January 1 of each year, and are computed as a percentage of the assessed value of the property being taxed. The assessed value of property generally means the annual determination of fair market value. "Fair market value" is usually defined as the price that a willing buyer would pay and a willing seller would accept for property, neither being under any compulsion to buy or to sell. It is also defined as the price at which property would change hands between a willing buyer and a willing seller when both have reasonable knowledge of all the facts necessary and neither is required to buy or sell.

Appraisers hired by the taxing authority most often value the property. Most taxing authorities require periodic inspections of the subject property as part of the valuation process and establish appraisal criteria to determine fair market value. Such criteria include factors analyzing: