How does ad valorem tax work?
- Periodically, counties and their assessors will determine the fair market value of all properties. This value is the estimated sales price of the property between a buyer and seller who both have reasonable knowledge of the facts of the property and with no external compulsion to complete the transaction.
- Tax assessments are typically calculated at the beginning of the year as a percentage of the assessed fair market value.
- At some later point in time, bills are sent out to property owners who may pay the tax liability in one or more installments throughout the year.
Where does ad valorem tax go?
The majority of property taxes go to the local government. However, special assessments can be levied that go directly to schools or transit authorities, etc. Property taxes is a major revenue source for state and municipal governments.
What is subject to ad valorem tax?
- Real property is subject to ad valorem tax. This includes land, buildings, other structures and any improvements to the property (such as a garage or ADU).
- Personal property may also be subject to ad valorem tax. For example, car registrations are paid yearly based on the value or weight of the car.
What is not subject to ad valorem tax?
- Incidental personal property such as clothing is not subject to ad valorem taxes.