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Every tax professional encounters ad valorem taxes at some point in their career. Many will work with this type of tax every day. In fact, in the U.S. and many other countries, ad valorem taxes represent the most significant source of government revenue.
What are ad valorem taxes, and how do they impact the work of tax professionals?
In Latin, ad valorem means ‘according to the value.’ Essentially, an ad valorem tax is based on the value of a property or transaction, regardless of its size, weight, or quantity. Typically, this tax is a percentage of an assessed value of the property or transaction being taxed.
Generally, this percentage is calculated by the determined market value ― the dollar amount a buyer would be willing to pay and the amount a seller would be willing to accept. In the U.S., this figure is often an annual determination, especially in the case of property transactions. However, not all ad valorem taxes are levied annually.
So, what are the most common types of ad valorem taxes, and how are they levied?
In the U.S., property and sales taxes are the most common forms of ad valorem taxes. In foreign jurisdictions, tax professionals may encounter value added taxes as well. Let’s examine each one in detail:
A property tax may be levied on real and personal property, including land, structures, private roads, and vehicles. It may be applied to improvements to property as well, such as adding a second bathroom to an existing house. In the U.S., property taxes fund local services such as schools and fire departments.
Property taxes are based on an assessment by a local authority. Typically, an assessment is conducted using one of three methods:
Unlike property taxes, which are levied once a year, sales taxes are charged at point of purchase and are the responsibility of the buyer. The sales tax is typically charged as a percentage of the value of the purchased item. This rate varies by jurisdiction, and five states do not levy sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
VAT is a tax on goods and services that is levied throughout the supply chain, rather than at point of sale. However, in practice, the consumer still pays the tax ― they’re simply paying for the value added at each stage of production. One of the purposes of a VAT system is to incentivize collection of taxes at every stage of the supply chain. Across the globe, VAT rates range from 10% to 25%.
Considering their ubiquity in the U.S. tax system, both professionals who work in the corporate world and those who work with individual taxpayers will likely encounter ad valorem taxes with great frequency. As noted above, sales and property taxes are two common forms of ad valorem taxes. In 2018, federal, state, and local governments collected over $1.4 trillion in ad valorem taxes.
Tax preparers and specialists may need to work with evaluators who can accurately determine the market value of assets. Taxes will vary by jurisdiction, so it’s important that preparers get accurate, local evaluations to best help their clients develop ideal strategies for managing their tax situations.
Additionally, tax professionals who work with international transactions may encounter VAT leveraged across a supply chain. These professionals will have to develop a deep understanding of how international taxes impact individuals and companies. This can seem very complicated on the surface, which is why an online master’s in taxation program breaks down key topics to address specific challenges comprehensively.
As one of the most common types of taxes, ad valorem taxes are a frequent theme in the Online Master’s in Taxation program from the D’Amore-McKim School of Business at Northeastern University. In this program, students looking to take the next step in their careers can delve deeper into federal, state, and local tax issues. Whether students want to work in the public sector or a corporate environment, these courses can provide useful insights into common ad valorem taxes:
As one of the primary forms of government revenue, ad valorem taxes account for a significant portion of the work many tax professionals will encounter on a daily basis. The 100% online Master’s in Taxation program from the D’Amore-McKim School of Business at Northeastern University can help you take your career to the next level by strengthening your understanding of tax fundamentals and expanding your knowledge of complex tax compliance challenges.
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Welcome to Northeastern University’s Online Master of Science in Taxation. We have designed this program with the seasoned tax professional in mind. The program expands and enhances the tax professional’s knowledge about the various areas of the tax code and field of taxation.
Today’s tax environment demands the continuous development of the tax professional in a range of ever changing tax law. The practice of taxation becomes more complex every year with new laws, regulations, and court cases. Northeastern University’s Online Master of Science in Taxation is designed to prepare the tax professional to meet these changes and challenges. After completing the core courses, our program encourages students to refine their advanced knowledge by concentrating on one of two tracks: Taxation of Entities or Taxation of Individuals.
I encourage you to expand your knowledge of the tax field in a high tech caring environment at Northeastern University. Please speak with our enrollment office to learn more about the online program.
Timothy Gagnon
Faculty Director
Online Master of Science in Taxation
Northeastern University
P.S. See you in class and on the web.