What does ad valorem tax refer to?

Ad valorem tax refers to a tax that is levied based on the assessed value of property rather than a fixed amount or size of property. This means that as the market value of the property increases or decreases, the amount of tax owed will also change accordingly. This system ensures that taxation is equitable, as property owners are taxed in proportion to the value of their property.

In practice, ad valorem taxes are commonly applied to real estate, vehicles, and other tangible assets, making it a foundational concept in property taxation systems. This method contrasts with fixed taxes, which do not account for the property’s monetary value. Thus, "a tax levied according to value" accurately captures the essence of ad valorem tax, making it the correct answer to the question.