After months of administrative stalemate, the Ohio Farm Bureau Federation is taking their campaign to fix Current Agricultural Use Value to the Ohio General Assembly.
Both the Ohio House of Representatives and Ohio Senate introduced identical bills backed by the OFBF into their respective chambers on November 17 and November 18, respectively, looking to make adjustments to the complex CAUV formula. The OFBF believes that these adjustments will help lower taxes on Ohio farmers, allowing them to continue their business even in a tough economic market.
“Farm bureau’s goal is to improve the accuracy of the formula,” Amy Milam, Director of Legal Education at OFBF said. “I think these are going to be good steps towards that.”
CAUV is a real estate tax reduction program in Ohio that provides farmers who meet certain agricultural qualifications the ability to pay less than market value for their land, making it easier for them to keep their farms in business. To qualify for CAUV, a farmer must have “ten or more acres must be devoted exclusively to commercial agricultural use,” or if they have less than ten acres “devoted exclusively to commercial agricultural use, the farm must produce an average yearly gross income of at least $2,500,” according to the Ohio Department of Taxation.
CAUV uses a formula that takes into account five factors that impacts the income producing potential of farmland, according to the Department of Taxation’s CAUV fact sheet. The five factors are producing potential of farmland: crop prices, crop yields, interest (capitalization) rates, cropping patterns and non-land production costs. The formula takes these factors into account and looks at the last seven year’s of a farmer’s production, cuts off the best year and the worst year, and then averages out the five middle years to determine each farmer’s agriculture real estate taxes.
As of 2014, the market value of an acre of land in Brown County was $2,436, but with CAUV reductions, a farmer with an acre of land would only have to pay an average of $888. That’s a 63.5 percent reduction of market value.
Every three years, CAUV valuations are recalculated across the state. The recalculations are staggered across the three years so that not everyone is feeling the affects of tax reduction changes, whether positively or negatively, at the same time. Brown County’s recalculating year is in 2015, with new tax numbers beginning on Jan. 1, 2016. According to Brown County Auditor Jill Hall, the Department of Taxation’s recalculations will see most farmers in Brown County who qualify for CAUV pay around twice as much in taxes next year as they did in the previous three years.
In November 2014, the OFBF made a series of recommendations to the Department of Taxation to adjust the formula. According to the Department of Taxation, two recommendations from the OFBF were adopted last March; using more current data for crop yields, crop prices, and production costs, and making adjustments to the capitalization rate.
But the OFBF felt there were other adjustments to make, and in May requested more changes from the Department of Taxation. After months of gridlock in Columbus, the OFBF decided it was time to go through legislative means to pass their agenda.
According to Milam, the bills would further adjust the capitalization calculations as well as set land set aside as conservation land at the lowest taxable rate.
“Both of these bills look at two specific recommendations we made in May,” Milam said. “One is to use a more accurate method of capitalization rate in the formula by removing some non-farm factors that are being used, such as appreciation and equity build up. The second item in the bills is for conservation land is to be valued at the lowest soil value.
“It’s looking at land that’s being used for conservation practices for at least three years. Additionally, this is going to the valuation of these conservation practices. Land enrolled in the federal conservation retirement program has no acreage limit on that. With respect to land not in a federal conservation program, currently the statute states up to 25 percent of the CAUV acreage can be used for these practices.”
The bill in the Ohio Senate is sponsored by State Senator Cliff Hite (R-Senate District 1) and the bill in the Ohio House of Representatives is sponsored by State Representative Brian Hill (R-Representative District 97). Brown County’s State Representative Doug Green (R-Representative District 66) is a co-sponsor of the bill.
According to an OFBF press release, the OFBF wants to change some assumptions in the formula that they feel inaccurately values farmland.
“The organization is challenging two inaccurate assumptions in the CAUV formula’s capitalization rate: that land is a short-term investment and that it becomes more valuable as its mortgage is paid down,” the press release states. “The two bills would prohibit certain non-agricultural factors from being used in the CAUV formula and remove disincentives for farmers to engage in certain conservation practices.
“The current CAUV formula assumes land is held for only five years when in reality farmland is typically held for decades and across multiple generations. Currently, there are non-use factors in the formula that inflate farmland value by assuming land appreciates and landowners achieve equity buildup at predetermined rates. But these have nothing to do with the agricultural use of the land. In both bills, the use of equity buildup and appreciation factors would be prohibited.
“Also in the bills are stipulations that CAUV land used for a conservation practice or enrolled in a federal land retirement or conservation program for at least three years be valued at the lowest of the values assigned on the basis of soil type. This requirement would encourage practices that protect the environment and water quality. Currently, farmers are discouraged from idling land because it is taxed as though it is producing crops. Farm Bureau believes taxing conservation lands at the CAUV minimum value is appropriate because conservation lands are non-producing.”
According to Green, for any major changes to impact CAUV, it would take a constitutional amendment. As such, all the OFBF and state can do is tweak the formula here and there.
“The impact that the CAUV progrma has had on the farmers of late has been pretty crucial…pretty severe. There is so little we can do but there are little things to tweak it to make it less severe and to make an impact both when the market goes up and market goes down. As the market goes down the tax values will decline as well. But it is a slow response because it’s a seven year process.
“The chairman of the agricultural committee, Brian Hill asked if I would be a co-sponsor on the bill. I’m always trying to make a positive impact on the farming community.”
Green said he had no timeline for when the bill would be referred to committee or make the floor, but did confirm that it would not have time to go up for a vote in the Ohio House of Representatives before the end of 2015.
Brown County Auditor Jill Hall is hosting a forum on Thursday, December 10 at 7:00 p.m. at Southern State Community College’s Mt. Orab campus for farmers who qualify for CAUV to ask questions about their tax changes and the reasons behind it. It’s important to note that Hall does not make the changes to CAUV values, but the Department of Taxation does.
Milam will also be at the event representing the OFBF.