Important Concepts of Alabama Ad Valorem Tax
An Overview of Ad Valorem Tax
Ad Valorem Tax refers to a tax based on the value of an item. An ad valorem tax is usually a local tax charged by counties or municipalities on real property like homes and land but it can also apply to other items including items in an inventory, cars and boats. Ad valorem literally means "according to the value" as it is a tax implemented based on the value of a property or service. In most cases, the amount of ad valorem tax imposed on a property is generally expressed as a percentage of the property’s fair market value, as demonstrated by either the selling price of the property and the prices of comparable properties or an appraiser’s opinion of value , which is given at the time of sale or transfer in the sales contract or act of sale.
State law requires all properties to be assessed for ad valorem tax purposes at a uniform percentage of fair market value, which varies by county based on the usage of the property. Residential property is assessed at 10% of fair market value, commercial property is assessed at 20% fair market value and utility property is assessed at 30% of the fair market value.
Ad valorem tax is commonly applied to items such as vehicles, boats, and aircraft. Ad valorem taxes are sometimes called property taxes, when the item being taxed is property as defined under Alabama law.
Alabama’s Ad Valorem Tax
Ad valorem taxes in Alabama are specifically governed by the Ad Valorem Tax Law (Sections 40-7-1 through 132, Code of Alabama 1975). They apply to both real and personal property, and the rate varies from jurisdiction to jurisdiction, but averages 4.9% statewide and over 6% in Jefferson County. Ad valorem taxes are due each year on January 1, and ad valorem tax assessments must be mailed out by October 1 of each year, although such assessments are subject to appeal until February 1 of the following year. The deadline for prepayment of Jefferson County ad valorem taxes without a penalty is November 1 of each year. Alabama law does provide a one time exemption on the first $4,000 of assessed value (which is 20% of fair market value) for all real and personal property owned by a resident of Alabama who is over 65 years of age and who makes less than $12,000 per year, as well as for all properties owned by a deceased taxpayer whose estate has not been closed. The Alabama Ad Valorem Property Tax Exemption for Senior Citizens is not available for state ad valorem taxes but is applicable to county and city ad valorem taxes levied for county or city purposes. The law also allows for any amounts collected from a county tax official who neglects to send ad valorem tax assessment notices to be sent to the state general fund beginning on February 1st of the year after the assessment date.
How to Calculate Ad Valorem Tax in Alabama
Calculating ad valorem tax in Alabama follows a uniform process across its counties, which rely on a common set of procedures. The process is based on a straightforward formula for ad valorem tax assessment: assessed value multiplied by the tax rate.
Assessment Ratios
In Alabama, 20% is currently the standard rate for both real property and personal property assessments. The taxable value, which is used to calculate the tax, is determined by multiplying the assessed value by the assessment ratio. Generally, if the assessed value is $200,000 and the assessment ratio is 20%, the taxable value will be $200,000 x .2 = $40,000.
Tax Rates
The tax rates, which are expressed in mills, vary by county. For example, the tax rate for residential real property is 11 mills in Baldwin County and 10.4 mills in Mobile County. This means the ad valorem tax in Baldwin County is 11 /1000 or $11 per $1,000 of taxable value of cars and boats, while the tax in Mobile County is 10.4 /1000. The tax rate in Montgomery County is 10.4 as well but $2 per $1,000 is levied for the loss of agriculture and timber products, and another $2 per $1,000 is levied for the loss of home owner’s 80% exemption. Lauderdale County is the same as Montgomery County except that the loss of agriculture and timber products is only $1 per $1,000.
Example:
Using the previous example of a $200,000 home or business in either Baldwin or Mobile County, the amount of taxes due would vary by county:
Baldwin County (11 mills x 10%):
$40,000 x 11 /1000 = $440
Mobile County (10.4/1000):
$40,000 x 10.4 /1000 = $416
Montgomery County (10.4/1000 + 2/1000):
$40,000 x (10.4 + 2) /1000 = $496
Loudadale County (10.4 + 2+ 1):
$40,000 x (10.4. + 2 + 1) /1000 = $496
Who Is Subject to Alabama Ad Valorem Tax?
Ad valorem tax, which is Latin for "according to value," is a property tax based on the value of the property in question. Ad valorem tax in Alabama is commonly associated with motor vehicles, as all motor vehicles are subject to ad valorem tax. In addition to motor vehicles, Alabama ad valorem taxes are levied on real, personal (business) property, and manufactured homes at a rate based on the property classification.
In Alabama , special property owners are required to pay ad valorem tax under the following circumstances:
Manufactured homes in Alabama are classified as real or personal property for ad valorem tax purposes based upon whether the manufactured home has been permanently affixed to the real property. If a manufactured home has permanent utility connections, plumbing connections and has been affixed to a permanent foundation system with concrete piers and/or footings, then it is classified as real property and subject to ad valorem tax. On the other hand, if a manufactured home does not meet the standards above, it is classified as "tangible property" (manufactured personal property) and is subject to ad valorem tax like other business personal property owned by a business entity.
How You Pay Ad Valorem Taxes
Before any ad valorem tax payment can be made, the Assessor’s office in each county must assess the personal property and real property for ad valorem tax purposes. The property is assessed each year at a percentage of appraised value. For instance, the appraised value of personal property is 15% of the fair market value of such property and the appraised value of real property is 20% of the fair market value of such property. Therefore, the assessed value of all qualifying property generally is 15% or 20% of the fair market value.
Ad valorem tax is assessed to the owner of the property on October 1 of each year and becomes a lien on the property at that time. However, the tax does not need to be paid until six months from this date – April 1 of the following year. The proration of current use property (mainly cutover timber land) only applies up to the point of assessment.
There are three ways to pay ad valorem tax on property in Alabama. The three methods of payment include: (1) In Person; (2) By Mail; and (3) Online.
In Person – You may, of course, pay personal property taxes in person. The deadline for payment is April 1st of the year for which ad valorem tax is due.
By Mail – You may pay your personal property taxes by sending a check by mail. The deadline for payment is April 1st of the year for which ad valorem tax is due.
Online – Ad valorem tax payments can also be made online through a tax collector’s website, by going to your county tax collector’s website.
Frequently Asked Questions on Ad Valorem Tax
We frequently answer taxpayer questions on ad valorem tax. Below is a sampling of those questions and answers.
Q: Where can I find the values listed for property in Alabama?
A: All counties have a property tax search tool on their tax assessor’s webpage, or can provide the property tax totals for wholesale properties in Alabama. Also, the Tax Assessor Association of Alabama has links to every county’s tax assessor site, which we maintain.
Q: What if my property has gone up in value since I last bought it?
A: The ad valorem taxes you owe remain based on the assessed value from the county tax assessor. Unless you have made a significant improvement to your property or added acreage , your taxes will not increase due to an increase in the value of the property. However, if real estate is remapped as a result of a parcel split or combination, or if your local municipality or county undertakes a countywide reappraisal, then your tax could certainly increase as a result.
Q: Does the seller or buyer usually pay sales and use tax on property?
A: While technically the buyer is responsible for the payment of sales and use tax in Alabama, in actuality, most of the time the seller pays the tax at closing.