SALEM, Ohio — An increase in 2008 Current Agricultural Use Value rates has many Ohio farmers wondering what happened to a program that typically helps them save a substantial amount of money on property taxes.
The good news is that the program hasn’t changed and it still allows farmers to pay taxes based on the agricultural value of their land. The bad news is the rate increase is legitimate, according to Larry Gearhardt, Ohio Farm Bureau Federation senior director of local affairs.
Current Agricultural Use Value was approved by Ohio voters in 1972 and allows qualified agricultural land to be taxed at its current agricultural value rather than fair market value. The home, home site and other buildings are taxed based on fair market value.
CAUV is calculated for each of Ohio’s 3,650 soil types with a formula that considers cropping patterns, crop prices, crop yields, non-land production costs and capitalization rates. These factors are applied to corn, soybeans, wheat and hay.
County auditors are required to reappraise each parcel of land in their jurisdiction every six years. In addition, the auditors must adjust property values every third year after a reappraisal. For many Ohio counties, the last adjustment in land values was in 2005, a year that happened to have the lowest land values in CAUV history, said Gearhardt, who sits on an committee of experts in farm production and economic issues that advises the Ohio Department of Taxation about the CAUV program.
Beginning in 2000, CAUV decreased rapidly and bottomed out in 2005 with the average land value at $123 per acre. With CAUV now on an upward swing, Gearhardt said it doesn’t take much of an actual increase to represent a 200-300 percent increase over 2005 values.
But the biggest reason behind the rise in 2008 CAUV rates is crop yields. In 2005, the Ohio Department of Taxation and the CAUV advisory committee discovered crop yield data had not been updated since 1984. Corn yield on some of Ohio’s best soil (Millgrove silt loam) was listed at 144 bushels per acre, but in 2005, the average corn yield for all types of soil was 152 bushels per acre. The scenario was the same for soybeans, wheat and hay, with wheat showing the biggest change.
Beginning in 2006, yields per acre were adjusted to accurately reflect modern production using an average from the previous 10 years. In 2008, for example, the corn yield for Millgrove silt loam went from 144 bushels per acre to 170 bushels per acre. The 10-year average will be a rolling average from now on, meaning it will fluctuate with the crop yields.
Another factor that caused an increase in CAUV rates for 2008 was a slight decrease in capitalization rates from 8.6 percent to 8.3 percent. Gearhardt said lower capitalization rates mean higher land value.
He also explained that an increase in land value does not equal the same percentage increase in taxes. Landowners often multiply the increased land values by last year’s millage rate, but there are other factors that contribute to the final number. Due to tax credits, expiration of certain mils and the tax reduction factor, a landowner’s taxes do not increase in the same proportion as the value.
Although CAUV rates have increased, the land enrolled in this program is still being taxed at 15-20 percent of fair market value, Gearhardt said.
“There’s nothing wrong with the formula,” he said. “We have one of the best formulas in the country.”
Gearhardt added that the purpose of CAUV is not to guarantee the lowest possible land values, but to accurately reflect what is happening in the agriculture industry. He pointed out that 2008 values are similar to 1999 values. However, landowners had became accustomed to the low values from 2002 and 2005, leading to a bit of sticker shock in 2008.
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CAUV is based on a formula containing five factors applied to four crops: Corn, soybeans, wheat and hay. The five factors are:
- Cropping patterns — Based on the slope of the soil with level ground weighted toward corn and beans and steep slope toward wheat and hay.
- Crop prices — Based on a survey of elevators in Ohio.
- Crop yields — Based on Farm Service Agency yields per acre for each soil type.
- Non-land production costs — Based on farmer surveys by Ohio State University.
- Capitalization rate — Based on the interest rate for a 15-year fixed mortgage at Farm Credit Services.
Crop prices, crop yields, non-land production costs and capitalization rates are calculated by taking the previous seven years of numbers, eliminating the highest number and lowest number, and then averaging the remaining five numbers.
These four factors are then added and subtracted to determine the net profit per acre of soil type and that number is divided by the capitalization rate.
This calculation is performed for each of Ohio’s 3,650 soil types.
(Source: Larry Gearhardt, Ohio Farm Bureau)