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Ad valorem tax

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  • 1. Ad valorem taxAn ad valorem tax (Latin for according to value) is a tax based on the value of real estate orpersonal property. It is more common than the opposite, a specific duty, or a tax based onthe quantity of an item regardless of price.An ad valorem tax is typically imposed at the time of a transaction (a sales tax or value-addedtax (VAT)), but it may be imposed on an annual basis (real or personal property tax) or inconnection with another significant event (inheritance tax, surrendering citizenship, ortariffs).Sales taxA sales tax is a consumption tax charged at the point of purchase for certain goods andservices. The tax is usually set as a percentage by the government charging the tax. There isusually a list of exemptions. The tax can be included in the price (tax-inclusive) or added atthe point of sale (tax-exclusive).Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactlyonce on any one item, and is simple to calculate and simple to collect. A conventional orretail sales tax attempts to achieve this by charging the tax only on the final end user, unlikea gross receipts tax levied on the intermediate business that purchases materials forproduction or ordinary operating expenses prior to delivering a service or product to themarketplace. This prevents so-called tax "cascading" or "pyramiding," in which an item istaxed more than once as it makes its way from production to final retail sale. There areseveral types of sales taxes: Seller or Vendor Taxes, Consumer Excise Taxes, RetailTransaction Taxes, or Value-Added Taxes.[2]Value-added taxA value-added tax (VAT), or goods and services tax (GST), is tax on exchanges. It is levied onthe added value that results from each exchange. It differs from a sales tax because a salestax is levied on the total value of the exchange. For this reason, a VAT is neutral with respectto the number of passages that there are between the producer and the final consumer. AVAT is an indirect tax, in that the tax is collected from someone other than the person whoactually bears the cost of the tax (namely the seller rather than the consumer). To avoiddouble taxation on final consumption, exports (which by definition are consumed abroad) areusually not subject to VAT and VAT charged under such circumstances is usuallyrefundable.Property taxA property tax, millage tax is an ad valorem tax that an owner of real estate or other propertypays 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 manmade things). Real estate, real property or realty is all terms for the combination of land andimprovements. The taxing authority requires and/or performs an appraisal of the monetaryvalue of the property, and tax is assessed in proportion to that value. Forms of property taxused vary between countries and jurisdictions.