Ohio’s Senate has settled on its solution for fixing Ohio’s CAUV formula. The Senate unanimously passed S.B. 36 yesterday after the Senate Ways and Means Committee adopted two amendments to the bill. The legislation aims to stem recent increases in property taxes for farmland enrolled in Ohio’s Current Agricultural Use Valuation (CAUV) program. The Senate’s bill will ensure that the CAUV formula “sticks to valuing farmland based on agricultural production,” stated the bill’s sponsor, Sen. Cliff Hite (R-Findlay).
In addition to including new factors in the CAUV formula, making changes to the capitalization rate calculation and addressing rates used for conservation lands (explained in detail in our earlier post on S.B. 36), the bill passed by the Senate yesterday contained two new provisions:
- A three year phase-in of the changes to the CAUV formula, which would begin the first tax year after 2016 in which a county’s sexennial appraisal or triennial update occurs. The purpose of the phase-in is to reduce the financial impact of lowered property valuations on school districts.
- Replacement of the seven year rolling average determination of the equity yield rate with an equity yield rate that equals the 25-year average of the “total rate of return on farm equity” determined by the United States Department of Agriculture but that cannot exceed the loan interest rate used in the debt factor of the capitalization rate computation.
Last week, Ohio’s House passed legislation containing different solutions for revising the CAUV program in H.B. 49 (see our summary of H.B. 49 here). Senate leaders yesterday indicated a willingness to work with the House to resolve the differences between the two bills. H.B. 49 is now before the Senate Finance Committee.
Read S.B. 36 as amended here. The Legislative Service Commmission’s summary of the bill is here.
Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program
The Ohio legislature continues to consider Current Agricultural Use Valuation (CAUV) this session. However, the latest discussion is not of Senate Bill 36, introduced by Senator Cliff Hite on February 7, 2017 (read more about that bill here). Instead, the current discussion centers on a new proposal in House Bill 49, Ohio’s “budget bill.” The House Finance Committee is currently considering that bill.
The budget bill proposal would require the equity yield rate used in the CAUV capitalization rate to equal the greater of the 25-year average of the total rate of return on farm equity published by the USDA or the loan interest rate. The capitalization rate is used to calculate a valuation from an annual profit for an average Ohio farm, considering only agricultural factors. The bill also proposes a holding period of 25 years for calculating equity build-up and land value appreciation in the formula.
The budget bill proposal also places a ceiling on the taxable value of CAUV land used for conservation purposes by requiring land to be valued as though it included the least productive soil. The proposed changes to the CAUV program would be phased in over two reassessment update cycles. The bill would also reconcile the proposed changes with the current formula by specifying that during the first three-year cycle in each county (beginning with tax year 2017), the tax value of CAUV land would include one half of the difference between its value under the new versus the old formula.
Time may soon tell whether Ohio lawmakers will address the agricultural community’s concerns about property tax increases and if so, whether it will prefer the House’s budget bill or the Senate’s proposal. The budget bill is available here–see page 652 of that document for the changes to the CAUV formula. The Senate’s bill, which has received four hearings before the Senate Ways and Means Committee, is available here.
Filed under Property, Tax
Written by: Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program
The Ohio Legislature is once again considering a bill regarding Ohio’s current agricultural use valuation (CAUV) program. CAUV permits land to be valued at its agricultural value rather than the land’s market or “highest and best use” value. Senator Cliff Hite (R-Findlay) introduced SB 36 on February 7, 2017. The bill would alter the capitalization rate used to calculate agricultural land value and the valuation of land used for conservation practices or programs. The bill has yet to be assigned to a committee.
The content of SB 36 closely mirrors the language of a bill meant to address CAUV from the last legislative session: SB 246. Introduced during the 131st General Assembly, SB 246 failed to pass into law. SB 246 proposed alterations to the CAUV formula which are identical to those proposed by the current bill: SB 36. According to the Ohio Legislative Service Commission’s report on SB 246, the bill would have proposed changes that would have led to a “downward effect on the taxable value of CAUV farmland.” The likely effect for Ohio farmers enrolled in CAUV would have been a lower tax bill.
Due to the similarity between the two bills, the potential impacts of SB 36 on the CAUV program will likely be comparable to those of the previous bill. The proposed adjustment of the capitalization rate is likely to reduce the tax bill for farmers enrolled in CAUV. More specifically, the bill proposes several changes to the CAUV formula:
- States additional factors to include in the rules that prescribe CAUV calculation methods. Currently, the rules must consider the productivity of the soil under normal management practices, the average price patterns of the crops and products produced to determine the income potential to be capitalized and the market value of the land for agricultural use. The proposed legislation adds two new factors: typical cropping and land use patterns and typical production costs.
- Clarifies that when determining the capitalization rate used in the CAUV formula, the tax commissioner cannot use a method that includes the buildup of equity or appreciation.
- Requires the tax commissioner to add a tax additur to the overall capitalization rate, and that the sum of the capitalization rate and tax additur “shall represent as nearly as possible the rate of return a prudent investor would expect from an average or typical farm in this state considering only agricultural factors.”
- Requires the commissioner to annually determine the overall capitalization rate, tax additur, agricultural land capitalization rate and the individual components used in computing those amounts and to publish the amounts with the annual publication of the per-acre agricultural use values for each soil type.
To remove disincentives for landowners who engage in conservation practices yet pay CAUV taxes at the same rate as if the land was in production, the proposed legislation:
- Requires that the land in conservation practices or devoted to a land retirement or conservation program as of the first day of a tax year be valued at the lowest valued of all soil types listed in the tax commissioner’s annual publication of per-acre agricultural use values for each soil type in the state.
- Provides for recalculation of the CAUV rate if the land ceases to be used for conservation within three years of its original certification for the reduced rate, and requires the auditor to levy a charge for the difference on the landowner who ceased the conservation practice or participation in the conservation program.
To read SB 36, visit this page. For more information on previous CAUV bills, see our previous blog post.
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