Ohio CAUV tax rates: What goes up, must go up some more

SALEM, Ohio — Property owners in 41 Ohio counties have received, or soon will, Current Agricultural Use Value, or CAUV, property tax estimates reflecting as much as a 200 to 300 percent increase since the last triennial update.

The latest evaluation is what Ty Kellogg, Ashtabula County Farm Bureau organization director, called an “economic perfect storm.”

“Agricultural property in Ashtabula County has traditionally been valued at around $100 to $200 an acre,” Kellogg said. “A few years ago that went up to as much as $600 to $800.”

At the end of the day, Kellogg said, tax bills went up only $50 to $200, not the several thousand dollar increases many feared.

“But now people are getting notices of another 300 percent increase and they are fighting mad,” he said.

What is it?

The CAUV is a differential real estate tax assessment program that lets farmland owners have their parcels taxed according to its value in agriculture, rather than 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 was passed into law by the Ohio General Assembly in April 1974.

Under scrutiny

While it is unlikely that legislative change will take place prior to property tax bills coming due in January, efforts to re-examine the CAUV formula have ramped up at the state level, according to Amy Milam, director of legal education at the Ohio Farm Bureau.

“We are always examining the CAUV formula, but recently we have intensified that review while trying to protect the integrity of the formula,” Milam said.

The purpose of the CAUV, Milam said, is to accurately value land as farm ground and not as developed property. She said that while looking at short-term policy changes, she and her colleagues remain aware of long-term ramifications of making such changes.

CAUV formula explained

One of the key issues being considered, Milam said, is the “capitalization rate.”

Larry Gearhardt, a field specialist in taxation in the College of Food, Agricultural, and Environmental Sciences at the Ohio State University, agreed that focusing on the capitalization rate presents the best options for landowners.

The current CAUV formula, set up in the Ohio administrative code, is based on five factors — 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, Gearhardt said.

These numbers, he explained, are then divided by the CAUV capitalization rate, which is currently 7 percent.

“The capitalization rate is cost of rate of return an investor would invest to purchase something,” Gearhardt said.

“Let’s say you have $100 net, and divide by a capitalization rate of 7 percent or 8 percent. The lower the (capitalization rate) number, the higher the net land value.”

The values are compiled each year and applied during the triennial updates.

“We have seen the values triple since the early 2000s,” Gearhardt said.

A continued decline in the capitalization rate over the past decade, due in part to fluctuations in the market in general, coupled with the increase in property values tied to higher commodity prices, has many Ohio farmers struggling, particularly since grain prices are now moving in the opposite direction, Kellogg said.

“The CAUV formula works, but the problem is that the input costs didn’t come down and property owners may have to deal with this for the next six years,” he said.

Task force formed

Fred Pierce-Ruhland is a Kingsville Township timber farmer getting hit by the new valuations.

“I saw my CAUV valuation doubled in 2010, doubled again in 2014, and it is likely to double again in 2017,” Pierce-Ruhland said. “The Ohio CAUV formula is based on corn and soybeans on ag side, and hasn’t been changed in decades.”

The figures are even more outdated for timber producers, he added.

Pierce-Ruhland is one of several farmers and the Ashtabula and Geauga County Farm Bureaus that have joined to form a task force to address the new evaluation formula.

The Ashtabula-Geauga CAUV task force group is also made up of representatives from OSU Extension, the Ashtabula Soil and Water Conservation District, auditors in Ashtabula and Geauga counties, and state Rep. John Patterson, D-99.

The group first gathered Oct. 6 and had its second meeting Oct. 20.

“It is basically a call to arms,” Kellogg said. “There were over 400 landowners at the first meeting.”

The group is exploring solutions, not just complaining about the existing formula.

“Representative Patterson said if we want to make a legitimate change, we can’t just gripe,” Kellogg said.

For example, Pierce-Ruhland proposes keeping the “good parts” of the current CAUV formula, but replacing the price and cost portions with Wall Street’s total return indexes.

“These indexes factor both commodity prices and their costs and are updated daily by Wall Street firms,” he said.

Other members of the task force proposed a 10 percent cap, up or down, every three years instead of the 200 to 300 percent increases experienced now.

Putting such changes in place, Pierce-Ruhland said, is likely to take up to two years, so the task force leadership is seeking a repeal of the 2014 tax increase and moratorium on the 2015 and 2016 increases, hoping a new formula is in place for 2017.

Timetable for change

Still, the question of whether the most recent land value increases are indeed the result of a flawed CAUV formula, or simply a regular market fluctuation remains to be seen.

Gearhardt said the decision to make changes to the CAUV formula ultimately falls to the Ohio Department of Taxation.

“But their hands are tied because yield amounts and commodity prices are real numbers,” he said. “And the Ohio Constitution says all property must be appraised uniformly, so we can’t simply start changing parts of it.

“The question is whether the formula flawed and I think that is what we are looking at,” Gearhardt said. “But in 2004 and 2005, with property values low, nobody was complaining about the formula.”