Ad Valorem Tax

Definition - What does Ad Valorem Tax mean?

Ad Valorem Tax is tax which is applied on the producing minerals in the Oil and Gas Minerals and Royalty Business. It is charged to the royalty interest owners and these royalty interest owners are paid the monthly royalty incomes by the operators as per their percentage of ownership in the oil and gas leases. This tax is billed and collected once per year.

Petropedia explains Ad Valorem Tax

Ad Valorem is a Latin word whose meaning is “According to the Value”. Thus, ad valorem taxes can be referred to as the taxes collected as per the total income value which the royalty interest owners made per month or per year based on their ownership percentages in the Oil and Gas Leases per county. These taxes are imposed at the time when a transaction happens, as in the case of value added tax or the sales tax.

Ad Valorem tax is mainly applicable in US and is related to earnings through real estate properties, land properties, etc. It also brings major source of earning and revenues to the government of state and municipal government.

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