Ad Valorem is a term from Latin which means “according to value.” It refers to an import duty that is calculated based on a percentage of the cargo’s dutiable value.
In the context of U.S. imports, an ad valorem duty is the most common type of tariff. When goods are imported, U.S. Customs and Border Protection (CBP) determines the “dutiable value” of the merchandise. This value is typically based on the transaction value — the price the importer actually paid for the goods.
Once this value is established, CBP applies the specific ad valorem duty rate found in the Harmonized Tariff Schedule of the United States (HTSUS) for that product’s classification code.
The ad valorem system is the standard method for duty assessment in the U.S. and globally because it directly links the tax owed to the monetary value of the product, ensuring that more expensive items pay a proportionally higher duty.
Example
If a shipment of a massive gas turbine is valued at $15,000,000 and the HTSUS code specifies a 25% ad valorem duty, the importer will owe $3,750,000 in duties.