valorem

Valorem is a term used in law and taxation, derived from the Latin valorem, meaning value. In practice, ad valorem—literally “to value” or “according to value”—describes taxes or charges determined by the assessed value of a good or transaction rather than by quantity or weight.

Ad valorem taxes are calculated by applying a tax rate to a base of economic value. The tax base is the value, which may be market value, appraised value, or another measure of worth, depending on the jurisdiction and type of tax. This contrasts with specific taxes, which levy a fixed amount per unit, such as per gallon, per kilogram, or per item.

Examples include property taxes, which are typically ad valorem using the property's assessed market value. Many sales or goods taxes are ad valorem, computed as a percentage of the sale price. Import duties can be ad valorem, based on the customs value of goods. Value-added tax (VAT) is a broad form of ad valorem tax applied to the value added at each stage of production or distribution.

Valuation process: Assessors or appraisers determine the value for tax purposes, sometimes with an appeals mechanism. Values may reflect market conditions, replacement cost, or statutory valuation rules.

Relation to policy: Ad valorem systems aim to align tax burdens with value or consumption, but they require periodic valuation and can be sensitive to market fluctuations. The term valorem remains a generic descriptor for value-based charges in legal and fiscal contexts.