Ad Valorem Equivalent (AVE) – Definition

Cite this article as:"Ad Valorem Equivalent (AVE) – Definition," in The Business Professor, updated February 22, 2019, last accessed October 22, 2020,


Ad Valorem Equivalent (AVE)

Ad valorem tax is a type of tax which is based on the property value of the properties such as real estate or personal property. The most common tax of this type is the real estate tax. This tax sometimes applies to other tax applications such as import taxes.

A Little More on What is Ad Valorem Tax

In Latin, ad valorem means “according to value.” Ad valorem taxes are levied on specific values which are taxable. One of the most common ad valorem tax is the municipal property tax which is frequently evaluated by the state tax consultant to determine its present value. Municipalities and other government agencies impose taxes on owners of real estate based on the estimated value of their properties.

Ad valorem tax is always based on actual assets, calculated and applied each year unlike other taxes such as transaction tax which is only applied during the period of transaction.

Collecting Ad valorem Equivalent (AVE)

Although the municipal government generally imposes the Ad valorem tax, it can also be collected by other municipalities like the county or school district. Real estate owners may face taxation that is imposed by multiple agencies like the counties or the municipalities. Ad valorem tax for municipal assets is referred to as ‘real estate tax,’ and it’s one of the most important sources of revenues for local governments.

Calculating Ad valorem Equivalent Tax Amount

Ad valorem value taxes are typically calculated on the first of January every year. This tax is the proportion of the fair market value of the real estate appraisal. This value is the estimated selling price of the property and includes the transaction between an interested buyer and seller where the seller knows all the essential facts concerning real estate. The deal is not completed, but the fair market value is understood more efficiently at a reasonable price.

Vat is usually applied to real estate and personal assets. Real estate encompasses all the improvements made on the land and the buildings. Ad valorem property tax is levied on important personal assets like the automobiles. Properties such as appliances and clothing are not applied.

References for Ad Valorem Equivalent

Academic Resources for Ad Valorem Equivalent

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