Category Archives: Tax

CAUV Changes Pass as Governor Signs Budget Bill

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

Governor Kasich signed HB 49 on June 30, 2017, otherwise known as Ohio’s Operating Budget. In addition to setting the budget for various agencies, HB 49 changes how farmland is valued under Ohio’s Current Agricultural Use Value program. HB 49 changes Ohio Revised Code Sec. 5715.01. The overall effect of the changes will likely be a downward trend in property tax valuation for Ohio farmers.

The budget bill prescribes the method for determining CAUV value for land devoted to agricultural use. The law requires appraisal methods to reflect and consider the following:

  • standard and modern appraisal techniques that take into consideration the productivity of the soil under normal management practices;
  • typical cropping and land use patterns;
  • the average price patterns of the crops and products produced;
  • typical production costs to determine the net income potential to be capitalized; and
  • other pertinent factors.

Under HB 49, the Tax Commissioner must annually determine and announce the capitalization rate used to compute CAUV values. The bill directs the Tax Commissioner to use standard and modern appraisal techniques in determining the land capitalization rate to be applied to the net income potential from agricultural use. In determining this yearly rate, the Commissioner must use an equity yield rate equal to the greater of the average of the total rates of return on farm equity for the last 25 years (as published by USDA), or the loan interest rate the Commissioner uses for that year to calculate the capitalization rate. The Tax Commissioner is required to assume that the holding period for agricultural land is twenty-five years for computing buildup of equity or appreciation with respect to that land.

HB 49 requires that land used in conservation programs be valued at the lowest soil productivity type. However, if land devoted to a conservation program ceases to be used for conservation purposes within three years of certification, the land will be valued at its actual soil type for all preceding years.

The Tax Commissioner must publish an annual report of CAUV values that can be sorted by county and by school district. The changes to CAUV begin in 2017, starting with counties undergoing reappraisal for the 2017 tax year. The budget bill, as signed by the Governor, is here—see page 2145 of that document for the changes to CAUV.

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Ohio Legislature Continues to Consider Two Separate CAUV Bills

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

Two separate bills concerning CAUV continue to be debated in the Ohio Legislature: Senate Bill 36 and House Bill 49. Ohioans may see changes to the CAUV program, if either bill passes the Legislature. Both bills aim to address rising CAUV rates for Ohio farmers. SB 36 changes the CAUV formula, making alterations to the capitalization rate and addressing the rate used for conservation land values. SB 36 passed in the Senate and is under consideration by the House Ways and Means Committee. The other bill that would address CAUV values—HB 49, is Ohio’s bi-annual budget bill. HB 49 similarly addresses Ohio’s rising CAUV values through proposed changes to the CAUV capitalization rate.

The difference between the two bills is that the budget bill will undoubtedly pass. That being said, the budget bill’s CAUV provisions may be cut from the final version.  On the other hand, there is no guarantee that the House will pass SB 36. There are several scenarios that may occur regarding the two CAUV bills in the Ohio Legislature.

Scenario #1: HB 49 (the Budget Bill) Passes with CAUV Provisions Included

In an earlier post, we explained  HB 49’s proposed changes to the CAUV program. HB 49 proposes changes to the CAUV program similar to those proposed in the standalone CAUV bill, SB 36. Although HB 49 currently contains amendments to the CAUV program, it is subject to change.

Passing a budget bill is a long and complex process.  Budget bills must start in the Ohio House of Representatives. The main purpose of a budget bill is to set the state’s operating budget, but such a bill may also include changes to Ohio laws. After the House passes a budget bill, the bill goes to the Ohio Senate. The Senate can pass the bill as written by the House, or the Senate may amend the bill and send their amended version back to the House.

The Senate passed their amended version of HB 49 on June 21. However, the House did not agree with the amendments. Therefore, the Senate and the House will soon hold a conference committee where both houses will meet and settle the differences between the two bills. Ohio’s budget is based on a fiscal year which ends on June 30. If passed, a new budget will go into effect July 1, 2017. Ohioans may soon learn if the state’s budget bill will enact changes to the CAUV program.

Scenario #2: SB 36 Passes and Changes the CAUV Program

Ohioans will soon find out if changes to the CAUV formula will be passed as part of HB 49. However, the CAUV provisions of HB 49 could still be removed before the bill passes. If CAUV changes are not passed via the budget bill, the CAUV formula could still be altered via SB 36.

SB 36 recently passed the Ohio Senate and is currently under consideration by the Ohio House Ways and Means Committee. The bill would make changes to Ohio’s CAUV formula, including the capitalization rate calculation and the rate used for calculating the value of conservation lands. For more information on SB 36, see our earlier blog post here.

The Ohio House can consider SB 36 until the end of the legislative session. The current legislative session ends on December 31, 2018. The House Ways and Means Committee may vote on SB 36 before the end of the session, or the bill could expire if it does not leave the committee before the end of the session.

The Legislature will soon meet in a conference committee to try and reach a consensus on the budget bill. HB 49 could pass as written or in an amended form that does not include any changes to CAUV. SB 36 may pass as written or amended as well. Conversely, it is plausible that neither bill could pass.

Read S.B. 36 as amended here.  The Legislative Service Commission’s summary of the bill is here. The most recent version of HB 49, as amended by the Senate, is here.

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Ohio Senate Passes CAUV Bill

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.

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CAUV Changes Proposed Again, This Time in the State’s Budget Bill

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.

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Ohio Legislature May Reconsider CAUV Bill

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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Ohio Creates New “Farm Winery” Liquor Permit

Governor Kasich has signed legislation to create a new “Ohio Farm Winery Liquor Permit.” To read this post, visit our new blog site at http://aglaw.osu.edu.

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Ohio Legislature Passes Agritourism Legislation

An agritourism bill first introduced over a year ago has finally received approval from the Ohio General Assembly. Visit our new blog site here to read this post.

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