The Property Tax Consultant’s Guide to Ad Valorem Tax

Property taxes are an annual weight on any commercial property owner’s shoulders. While most owners are used to getting standard property tax bills, sometimes industry terms pop up that can leave them scratching their heads.

One term that usually causes confusion with taxpayers is Ad Valorem Tax. While many people know it has close ties to their annual bill, they may not be aware of the specifics that come with Ad Valorem Tax and commercial property. Here’s a closer look at the details.

What is Ad Valorem Tax?

Simply put, an Ad Valorem Tax is a term that’s used to represent the assessed value of an item. It literally translates from Latin to, “according to value.”

In this instance, Ad Valorem Tax represents the property tax that hangs over a piece of commercial real estate.

Is Ad Valorem Purely a Property Tax?

No, Ad Valorem tax isn’t just focused on property. Ad Valorem taxes are also levied during transactions. Sales tax is Ad Valorem. The biggest difference is that while Ad Valorem focused on real estate is annually calculated, transactional Ad Valorem is levied when the transaction is complete.

How is it Calculated for Commercial Property?

Commercial property is considered a real asset. So, when it is levied, the tax is calculated based on the fair market value of the property. Remember, this is still the commercial property tax valuation that we typically focus on. It is:

  • Calculated by local municipalities
  • Assessed by county assessors
  • Based on comparable market data, projected property income, and depreciation

These Ad Valorem calculations don’t just apply to commercial real estate. During assessments, properties are placed under individual classifications that include residential, industrial, agricultural.

These classifications impact how much Ad Valorem tax is for each property. So, if you have a commercial property on your hands and have questions about upcoming taxes, let a property tax consultant help you resolve any questions you may have about tax calculations.

Who Gets Your Ad Valorem Tax Dollars?

Since it is a property tax, local municipalities and the state are who benefit from you paying Ad Valorem Tax. Ad Valorem property taxes are some of the biggest aspects of revenue for public services.

So, while these annual payments may be hefty, they help you contribute to the community as an upstanding business owner. Some of the ways your Ad Valorem tax dollars go to use include:

  • School district improvements
  • Local infrastructure
  • Contributions to municipalities like police and fire services

Questions About Your Ad Valorem Tax? The Hegwood Group can Help!

Sometimes the specifics of commercial property tax can be a burden on property owners. Whether you have questions about how your property tax was calculated or if you want to dispute your property tax payment, The Hegwood Group can help. Don’t let Ad Valorem Tax keep you frustrated. Contact us today to learn more about our services and schedule an appointment with a property tax consultant.

Sales and use tax