Landowners learned about the 2017 Current Agricultural Use Value (CAUV) reform at Beck’s Hybrids in London, Thursday, Jan. 18. Changes focus on the capitalization rate, conservation land and land value formula, according to Madison County Auditor’s Office and Ohio Farm Bureau.
“CAUV is always a priority and top issue,” said Amy Milam, Director of Legal Education, Ohio Farm Bureau. “CAUV is absolutely crucial and so very necessary to farmland preservation.” The 2017 CAUV reform improves how the capitalization rate is determined by more closely tying it to the farm economy, says Milam, rather than the general financial markets.
Milam spoke to landowners of various local Ohio counties at the CAUV Meeting at Beck’s, along with Jennifer Hunter, the Madison County auditor. The event covered various topics which will impact landowners during the next several years.
2017 CAUV reform
The reform will increase holding assumptions from 5 to 25 years. Milam says that “most farms are passed down in a family and are owned and operated for more than five years.” Not only did this make the formula more accurate, but Milam says that this has effectively eliminated the assumption that land is always appreciating.
Equity assumptions will now be based on farm-specific equity data from the United States Department of Agriculture, instead of the general federal interest rate. The changes also dictate that the equity rate cannot fall below the debt rate.
“[CAUV reform] made such a drastic change in the values that they decided to phase it in over six years,” said Hunter. The reforms will be phased in over 2-year cycles during the next six years, allowing for local communities and schools to transition to the a more accurate CAUV formula.
“The CAUV values have gone down in this first cycle of about an average of 30 percent,” said Hunter. This reflects the value on the agricultural land, not any buildings on home sights and residencies. This percentage will stay the same for the next three years.
Hunter says that these values should go down another 30 percent in 2020, which is the next cycle. “That’s based on the legislative changes in the formula and the capitalization rate,” she said. Every county is fully reappraised every six years and then updated every third year after that. This is done on a rotating schedule.
How CAUV is calculated
The Ohio Department of Taxation calculates the CAUV every year for each of Ohio’s 3,500-plus soil types. The formula to calculate the CAUV value is net income divided by capitalization rate, a formula set out by Ohio law. The capitalization rate is determined from the debt rate and equity rate.
The Ohio Department of Taxation then submits a table of the CAUV values by soil type to the county auditors for use in counties with property reappraisals or updates in that year. This calculation is based on three crops: soybeans, wheat and corn.
Crop prices, production costs and the capitalization rate is based on a seven-year rolling average. From the seven years of objective statewide data, the highest and the lowest are removed and the remaining five are averaged.
The average capitalization rate between 1998 and 2002 was 9.8 percent; and the average rate between 2012 and 2016 was 6.7 percent. In 2017 the average rate jumped to 8 percent.
“The lower the capitalization rate the higher the resulting value,” said Milam. “Just know that there’s always continuing focus at Ohio Farm Bureau to make sure that farmland values are accurate.”
For 2017 reappraisals the data points are between years 2010 and 2016.
“When you were last reappraised,” Milam explained to those reappraised in 2017, “you saw the highest CAUV values you’ve ever seen. What was happening at that time with interest rates being held down at the federal level, that had a huge negative impact on the capitalization rate used in the formula.”
In the summer of 2017 the State Budget Bill was introduced and made effective thereafter, which was “ultimately the vehicle” that allowed these forms and changes to come through.
Repealing CAUV determinations
On Dec. 7, the Ohio Supreme Court released the decision that landowners can appeal the CAUV table values to the Board of Tax Appeals, according to Milam.
“The Ohio Farm Bureau supported that landowners should have jurisdiction over those appeals because the landowners have to be given a chance to be heard,” said Milam.
This decision was brought up by the Adams v. Testa case, when landowners filed an appeal with the Board of Tax Appeals challenging the Tax Commissioner’s journal entry of CAUV values. The landowners argued that woodland values were overvalued and overtaxed.
Conservation land changes
The 2017 reform also removes disincentives for farmers to engage in certain conservation practices. CAUV land used for year-round conservation practices or enrolled in a federal land retirement or conservation program for at least three years will now be valued at the lowest soil value. This minimum value is $230 per acre CAUV value.
“Previously to the state budget bill, if you had ground that was used for soil or soil erosion prevention or conservation practices in place, you were still being valued on that land the same as if it were producing corn, wheat or soybeans,” Milam said.
Conservation landowners will need to provide a copy of their contract and a map with the conservation acreage to their county auditors. For those who have conservation practices not in a federal program must also provide maps to county auditors.
Farmers can find more information on the 2017 CAUV reform at the Ohio Department of Taxation website: www.tax.ohio.gov. Look for Ohio taxes, then property taxes and then CAUV.
Amanda Rockhold is a staff writer for Rural Life Today. She can be reached at 740-852-1616, ext. 1617.