Ad valorem tax
An ad valorem tax is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax. An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries a stamp duty is imposed as an ad valorem tax.
Sales tax
A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax can be included in the price or added at the point of sale.Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged every time an item is sold retail, and is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business which purchases materials for production or ordinary operating expenses prior to delivering a service or product to the marketplace. This prevents so-called tax "cascading" or "pyramiding," in which an item is taxed more than once as it makes its way from production to final retail sale. There are several types of sales taxes: seller or vendor taxes, consumer excise taxes, retail transaction taxes, or value-added taxes.
Value-added tax
A value-added tax, or goods and services tax, is a tax on exchanges. It is levied on the added value that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer. A VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax. To avoid double taxation on final consumption, exports are usually not subject to VAT and VAT charged under such circumstances is usually refundable.History
, joint director of the French tax authority, the Direction générale des impôts, as taxe sur la valeur ajoutée, was first to introduce VAT with effect from 10 April 1954 for large businesses, and extended over time to all business sectors. In France, it is the most important source of state finance, accounting for approximately 45% of state revenues.Property tax
A property tax, millage tax is an ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. There are three species or types of property: Land, Improvements to Land, and Personal. Real estate, real property or realty are all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.Application of a sales or property tax
United States
Ad valorem duties are important to those importing goods into the United States because the amount of duty owed is often based on the value of the imported commodity. Ad valorem taxes are a major source of revenues for state and municipal governments, especially in jurisdictions that do not employ a personal income tax. Virtually all state and local sales taxes in the United States are ad valorem."Ad valorem" is used most frequently to refer to the value placed on property by the county tax assessors. An assessment is made against this value by applying an assessment rate. The net assessment is determined after subtracting any exemptions to which the property owner is entitled, and a tax or millage rate is applied to this net assessment to determine the ad valorem tax due from the property owner.
The two main basis for determining the ad valorem value are fair market value and current use value. The fair market value is based on the typical selling price for property on which the buyer and seller can agree, with the assumption that the property is being used or will be used at its highest and best use after the sale. The current use value is the typical selling price for property with an assumption that it will continue after the sale to be used in its current use rather than being converted to its highest and best use. State legislatures have created many variations to these two main valuation approaches.
In some states, a central appraisal authority establishes values on all properties and distributes these to the local county or jurisdiction taxing authority, which then sets a tax rate and imposes the local ad valorem tax. In other states, a central appraisal authority values certain properties that are difficult to value at the local level and sends these values to the local county or jurisdiction taxing authority, while the local tax assessors determine the value on all other property in the county or jurisdiction.
"Ad valorem" tax, most frequently referred to as property tax, relates to the tax that results when the net assessed value of a property is multiplied times the millage rate applicable to that property. This millage rate is usually expressed as a multiple of 1/1000 of a dollar. Thus the fractional amount of 0.001 will be expressed as 1 mill when expressed as an ad valorem tax millage rate.
The tax determined from multiplying the ad valorem assessment times the ad valorem tax rate is typically collected by the tax collector or tax commissioner.
Application of a value-added tax
United Kingdom
The third largest source of government revenues is value-added tax, charged at the standard rate of 20% on supplies of goods and services. It is therefore a tax on consumer expenditure. Certain goods and services are exempt from VAT, and others are subject to VAT at a lower rate of 5% or 0%.Canada
The Goods and Services Tax is a multi-level value-added tax introduced in Canada on January 1, 1991, by Prime Minister Brian Mulroney and finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax because it hurt the manufacturing sector's ability to export. The introduction of the GST was very controversial. As of January 1, 2012, the GST stood at 5%.As of July 1, 2010, the federal GST and the regional Provincial Sales Tax were combined into a single value-added sales tax, called the Harmonized Sales Tax. The HST is in effect in five of the ten Canadian provinces: British Columbia, Ontario, New Brunswick, Newfoundland and Labrador, and Nova Scotia. Effective April 1, 2013, the Government of British Columbia eliminated the HST and reinstated PST and GST on taxable services provided in British Columbia.
VGGSA
Australia
The Goods and Services Tax is a value-added tax of 10% on most goods and services sold in Australia.It was introduced by the Howard Government on 1 July 2000, replacing the previous federal wholesale sales tax system and designed to phase out the various state and territory taxes such as banking taxes, stamp duty and land value tax. While this was the stated intent at the time, the States still charge duty on a various transactions, including but not limited to vehicle transfers and land transfers, insurance contracts and agreements for the sale of land. Many States, such as Western Australia, have made recent amendments to duties laws to phase out particular duties and clarify existing ones. The Duties Act 2008 is available online at the
New Zealand
The Goods and Services Tax is a value-added tax of 15% on most goods and services sold in New Zealand.It was introduced by the Fourth Labour Government on 1 October 1986 at a rate of 10%. This was increased to 12.5% on 1 July 1989 and 15% on 1 October 2010.
Europe
A common VAT system is compulsory for the member states of the European Union. The EU VAT system is imposed by a series of European Union directives, the most important of which is the Sixth VAT Directive. Nevertheless, some member states have negotiated variable rates or VAT exemption for regions or territories. The regions below fall out of the scope of EU VAT:- Åland Islands
- Heligoland island, Büsingen am Hochrhein territory
- Guadeloupe, Martinique, French Guiana, Réunion
- Mount Athos
- Ceuta, Melilla, The Canary Islands
- Livigno, Campione d'Italia, Lake Lugano
- Gibraltar, The Channel Islands
VAT that is charged by a business and paid by its customers is known as output VAT. VAT that is paid by a business to other businesses on the supplies that it receives is known as input VAT. A business is generally able to recover input VAT to the extent that the input VAT is attributable to its taxable outputs. Input VAT is recovered by setting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government.
Different rates of VAT apply in different EU member states. The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 5%, are applied in various states on various sorts of supply. The maximum rate in the EU is 25%.
The Sixth VAT Directive requires certain goods and services to be exempt from VAT, and certain other goods and services to be exempt from VAT but subject to the ability of an EU member state to opt to charge VAT on those supplies. Input VAT that is attributable to exempt supplies is not recoverable, although a business can increase its prices so the customer effectively bears the cost of the 'sticking' VAT.
Finally, some goods and services are "zero-rated". The zero-rate is a positive rate of tax calculated at 0%. Supplies subject to the zero-rate are still "taxable supplies", i.e. they have VAT charged on them. In the UK, examples include most food, books, drugs, and certain kinds of transport. The zero-rate is not featured in the EU Sixth Directive as it was intended that the minimum VAT rate throughout Europe would be 5%. However, zero-rating remains in some Member States, most notably the UK, as a legacy of pre-EU legislation. These Member States have been granted a derogation to continue existing zero-rating but cannot add new goods or services.
The UK also exempts or lowers the rate on some products depending on situation; for example milk products are exempt from VAT, but if you go into a restaurant and drink a milk drink it is VAT-able. Some products such as feminine hygiene products and baby products are charged at 5% VAT along with domestic fuel.
When goods are imported into the EU from other states, VAT is generally charged at the border, at the same time as customs duty. "Acquisition" VAT is payable when goods are acquired in one EU member state from another EU member state. EU businesses are often required to charge themselves VAT under the reverse charge mechanism where services are received from another member state or from outside of the EU.
Businesses can be required to register for VAT in EU member states, other than the one in which they are based, if they supply goods via mail order to those states, over a certain threshold. Businesses that are established in one member state but which receive supplies in another member state may be able to reclaim VAT charged in the second state under the provisions of the Eighth VAT Directive. To do so, businesses have a value added tax identification number. A similar directive, the Thirteenth VAT Directive, also allows businesses established outside the EU to recover VAT in certain circumstances.
Following changes introduced on July 1, 2003,, non-EU businesses providing digital electronic commerce and entertainment products and services to EU countries are also required to register with the tax authorities in the relevant EU member state, and to collect VAT on their sales at the appropriate rate, according to the location of the purchaser. Alternatively, under a special scheme, non-EU businesses may register and account for VAT on only one EU member state. This produces distortions as the rate of VAT is that of the member state of registration, not where the customer is located, and an alternative approach is therefore under negotiation, whereby VAT is charged at the rate of the member state where the purchaser is located.
The differences between different rates of VAT was often originally justified by certain products being "luxuries" and thus bearing high rates of VAT, whereas other items were deemed to be "essentials" and thus bearing lower rates of VAT. However, often high rates persisted long after the argument was no longer valid. For instance, France taxed cars as a luxury product up into the 1980s, when most of the French households owned one or more cars. Similarly, in the UK, clothing for children is "zero rated" whereas clothing for adults is subject to VAT at the standard rate of 20%.