Which type of tax is based on a percentage of the selling price rather than a flat amount?

The correct choice is based on the principle that an ad valorem tax is levied as a percentage of the value of the good or service being sold, which directly correlates with its selling price. This means that as the price of the item increases, the amount of tax paid also increases proportionately. This type of tax is common in many jurisdictions and is often applied to goods like property, sales, or customs duties.

In contrast, a flat rate tax is fixed at a certain amount, regardless of the value or price of the item, meaning it does not adjust to the selling price. An indirect tax refers to taxes imposed on goods and services but does not specify the method of calculating the tax. Finally, a subsidy is a financial support given by the government to encourage production or consumption, and it is not a type of tax. Understanding these definitions enhances comprehension of taxation and its implications in economic terms.