What type of taxes are based on property value?

Ad valorem taxes are directly related to the value of property. These taxes are assessed based on the assessed value, which reflects the market value of the property. The term "ad valorem" is Latin for "according to value," indicating that the amount owed increases with the increased value of the property. Common examples of ad valorem taxes include property taxes levied on real estate and personal property.

In contrast, sales taxes are levied on sales transactions and are not directly tied to the value of property. Excise taxes are applied to specific goods or services, such as gasoline or alcohol, and are generally not based on property value. Income taxes are assessed on individual or corporate earnings and do not correlate with property ownership or property values. Understanding the function of ad valorem taxes is crucial in the context of municipal finance, as they are a significant revenue source for local governments, funding essential services such as schools, infrastructure, and public safety.