Question

An example of an ad valorem tax is:

1) a $2 per-pack tax imposed by a local municipality on the sale of cigarettes, irrespective of the cigarette brand
2) a 6.5% sales tax charged by a local grocery store on products other than food
3) the 18.3 cent federal tax charged on each gallon of gasoline purchased
4) a residential property tax paid by a homeowner that depends upon the property's market value as determined by a county tax appraiser

Answer 1

The residential property tax dependent on a property's market value is an ad valorem tax, as it is based on the assessed value. Fixed taxes on cigarettes or gasoline are not ad valorem, while sales tax is ad valorem since it's a percentage of the price.

Step-by-step explanation:

An example of an ad valorem tax is a tax that is based on the assessed value of an item, such as real estate or personal property. Among the options provided, the residential property tax paid by a homeowner that depends upon the property's market value as determined by a county tax appraiser is an example of an ad valorem tax. This tax is proportional to the value of the property; as the value goes up or down, so does the tax.

Other examples, like a fixed per-pack tax on cigarettes or a constant tax per gallon of gasoline, are specific excise taxes, not ad valorem, because they do not change based on the value of the item being taxed.

Sales tax, charged by a local grocery store on all products other than food, is also an ad valorem tax, as it is a percentage of the retail sale price, and therefore varies with the amount spent.