What is "ad valorem tax"?

Ad valorem tax refers specifically to a tax that is assessed based on the value of an asset, typically real estate property. This means that the amount of tax an owner must pay is directly correlated to the assessed value of their property. The more valuable the property, the higher the tax, which is a fundamental principle of ad valorem taxation.

This system allows for a fair assessment related to the wealth represented in property ownership, making it an essential component of local government funding through property taxes. This context helps define why ad valorem taxes are a significant source of revenue for municipalities, enabling them to provide public services and infrastructure.

In contrast, other options describe different types of tax systems or measurement bases that do not correspond to the characteristics of ad valorem tax. For example, a tax based on property income, a fixed tax, or a tax for services rendered by the municipality each represent unique taxation scenarios that do not incorporate the property value assessment approach inherent to ad valorem taxes.