What’s up with CAUV appeals?

SALEM, Ohio — In the fall of 2014, farmers and landowners in nearly half of Ohio counties were in the process of finding out their new Current Agricultural Use Values. For many, those values went up — in some cases as much as 200-300 percent higher than the previous value.

The program

The Current Agricultural Use Value is a program that allows land to be taxed according to its farm value, as opposed to full market value. It applies to landowners with 10 or more acres devoted to commercial agricultural use, or, if below the acreage threshold, farms that produce an average yearly gross income of at least $2,500.

The CAUV is calculated based on yield, crop price, an established crop rotation pattern, the subtraction of production costs, and (the resulting) net income per acre of a parcel of a particular soil type. The net income value is then divided by the CAUV capitalization rate (Akerson mortgage equity formula), which in recent years has been decreasing, along with decreasing interest rates, leading to higher land values.

What happened.

Farmers saw historic highs for yields and crop prices in the three-plus years leading up to the most recent property tax update. At the same time, interest rates have decreased, along with the capitalization rate, causing CAUV taxes to skyrocket.

The response

Frustrated property owners responded in a variety of ways. Many turned to Ohio Farm Bureau Federation, the Ohio Farmers Union and the Ohio Department of Taxation, to begin a process of meetings and dialogue, in an effort to control how fast future CAUV rates can rise. Another group of landowners ­began an appeals process with the Ohio Board of Tax Appeals — over assessments of forestland. And a third group chose to sue the state and its tax commissioner, in Ashtabula County Common Pleas Court.

The result

The group working with the Ohio Department of Taxation, and the Ohio Agriculture Advisory Committee, was successful in getting the department to adopt policies that would more closely tie tax values to current economic conditions in agriculture, and also more accurately reflect woodlands values.
This will lower valuations in counties being reassessed in 2015, for taxes payable beginning in 2016.

More action

But the same group of landowners is asking the department for additional improvements, and is supporting a legislative push for CAUV reform in both the House and Senate, known as H.B. 398, and S.B. 246.

Both bills call for an amendment to the capitalization rate, that would provide a more accurate agriculture value by excluding appreciation and equity buildup. And both bills also seek to protect farmers who are investing in conservation practices, by stipulating that land used for conservation, enrolled in a federal land retirement or conservation program for at least three years, be valued at “the lowest of the values” assigned to soil types.

Stalled in committee

The bills have both been assigned to committee, but neither has appeared on the legislative calendar, and no hearings have been held. The House bill has been assigned to the Government Accountability and Oversight Committee, while the Senate bill has been assigned to the Senate Ways and Means Committee.

Ohio Rep. Brian Hill, R-Zanesville and the lead sponsor for the House bill, said the CAUV issue is probably “the largest issue right now” before Ohio’s farmers. Hill is one of about 25 sponsors to the House bill, and said he’s been encouraging the House committee to gather proponent testimony and act on the bill.

Like the farmers and farm organizations that proposed the two bills, Hill had hoped the remaining issues would be resolved through negotiation.

“We had hoped the tax department would take care of it without having to do legislation, but they have chosen not to do that,” he said.

What will the court say?

Meanwhile, farmers and their attorneys are awaiting a court decision on the lawsuit they filed in Ashtabula County against the tax department. That suit argues that Ohio’s CAUV rates were unfairly set according to row-crop prices, and did not take into consideration other cropping patterns including land that grows no crops.

A hearing was held Jan. 15, to decide whether the case should be dismissed, as the state has requested, or transferred to Franklin County, where state administrators and tax officials are located. A decision is pending with Ashtabula County Common Pleas Judge Gary Yost.

What will the board of appeals say?

The landowners who filed an appeal with the state argued that the cost of clearing forestland was factored too low ($1,000 an acre), when in reality, the cost is more than $3,300 an acre. The appeal was filed with the state tax department Dec. 9, by about 30 landowners. A hearing is scheduled for Aug. 2.