American Institute of Certified Planners (AICP) Practice Exam

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What type of tax is based on a percentage of the property value?

Sales Tax
Property Transfer Tax
Ad Valorem Tax
Income Tax

The correct answer is: Ad Valorem Tax

The type of tax that is based on a percentage of the property value is the Ad Valorem Tax. This term, derived from Latin meaning "according to value," specifically refers to taxes that are calculated based on the assessed value of property, which can include real estate and personal property. Ad valorem taxes are commonly used to fund local government services, such as schools, fire departments, and infrastructure, by levying a percentage rate on the value of properties within a jurisdiction. In contrast, sales tax is charged on the sale of goods and services and is not directly tied to property value. Property transfer tax is levied during the transfer of property ownership, typically calculated as a percentage of the sale price, but it does not apply continuously to the value of the property itself like ad valorem taxes do. Income tax is based on an individual's or entity's earnings, rather than the value of property. Therefore, ad valorem tax is the correct answer, as it directly correlates with property value assessments.