Some progress at Ohio tax department CAUV meeting; still more questions

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farm landscape

 (Portions of this story were updated on March 6)

COLUMBUS — Changes to the Ohio Department of Taxation’s Current Agricultural Use Value property tax formula could be coming as soon as May, Ohio Department of Taxation officials said at the department’s most recent Agricultural Advisory Committee meeting March 5.

Officials from the Ohio Department of Taxation, along with a roomful of farmers landowners, county auditors and Congressional representatives from across the state, discussed a variety of methods to more accurately assess CAUV property evaluations.

The CAUV was established in 1975 as a means of taxing farmland on its agricultural use value and not its full market value.

In recent years, due to higher crop prices and lowered interest rates, some Ohio farm owners have faced as much as 200-300 percent increases in CAUV rates.

Formula change

Tax officials discussed how the CAUV is currently computed, along with proposed changes, such as increasing the deduction for woodland clearing from $500 to $1,000 and improving the timeliness of the release of annual crop price and crop yield tax values.

CAUV updates based upon the next three-year appraisal period, which begins this year, are expected to be completed by May or early June, Deputy Tax Commissioner Stan Dixon said.

Scroll down to see linked to related CAUV stories.

A primary issue that all agreed must be addressed is how tax officials compute the capitalization rate — essentially the rate of return an investor would invest to make a purchase — when determining a CAUV.

While a CAUV is determined by a number of factors, including yield, crop price and production costs, a lower capitalization rate results in a higher property value.

Ted Finnarn, a Greenville, Ohio, attorney, Ohio Farmers Union representative, and member of the tax department’s Ag Advisory Committee, said the CAUV was originally calculated using a “band of investment” computation method.

Efforts to reduce interest rates overall eventually led to the tax department’s adoption of the “Akerson” method, which Finnarn said takes into account a number of non-farm production related factors and is a less accurate assessment of agricultural value.

Chad Endsley, general counsel for the Ohio Farm Bureau, estimated that moving away from the Akerson method and back to the band of investment method would result in a 2.2 percent higher capitalization rate — in turn leading to lower property values.

Barry Ward, assistant Extension professor in the Ohio State University College of Food Agricultural and Environmental Sciences, cautioned against assuming urged the farm groups to research how the Akerson method has worked over the past two decades and not just since the last triennial update.

Risk assessment

The Ohio Department of Taxation reports that, on average, CAUV properties are valued at 52 percent of market value — with farmland in Trumbull and Mahoning counties, for example, valued at 65 to 75 percent of market value, while farmland in Stark County is taxed at only 15 percent of market value.

Leah Curtis, director of agricultural law at Ohio Farm Bureau, suggested that the state’s average tax millage figure used in CAUV be looked into further, particularly in relation to how it affects farms located in municipalities with higher tax millage rates.

Bruce Kettelle, a Trotwood, Ohio, farmer, agreed.

“I have this extra tax bill that deflates the value of my property,” Kettelle said. “So I can’t sell the property for what I thought it was worth, and I can’t farm it. I’m only getting credit for the state average, but I have this ‘phantom profit.’ It’s almost predatory taxing.”

Shelley Wilson, Ohio Department of Taxation executive administrator of property taxes, took issue with Kettelle’s logic.

Wilson said all property taxes are based upon the value of the property, not the property owner’s ability to pay the tax.

“We’re not going to adjust residential rates to get farmers lower rates,” Wilson said.

When Licking County landowner Chuck Walker asked what she would tell a property owner whose CAUV rates have begun to exceed his farm’s market value, Wilson said she would first direct him to his county auditor.

CAUV rates, Wilson said, have remained consistent with the farm economy. County property tax valuations, however, are often not as predictable.

Walker said he had heard that explanation before and called Wilson’s answer “a cop-out.”

Rentals and woodlands

John Dorka, executive director of the Ohio Forestry Association, commended the tax department on its efforts to address the issue of woodlands values, as they relate to CAUV — so long as the value is being based on clearing woodland for agricultural use.

“And I hope the $1,000 is just a beginning because I could argue that is still low,” Dorka said.

Granville, Ohio, property owner Anthony Campolo questioned who should be responsible for CAUV taxes on cash rent acreage when the property owner is not the person farming.

“Historically, the landowner is stuck with it,” Dixon said of the tax responsibly. “But are you saying you can’t get enough rent to cover your taxes?”

Likewise, Mel Borton, of Fulton County, said taxes on his rental property have increased to a third of his rental income.

Dixon said he does not feel that taxes are playing any part in the disappearance of farms and the CAUV was established to help farmers in urban areas, where residential property values were not in line with the farming community.

“In Licking County, there wasn’t even a CAUV then because it was all farmer-to-farmer sales,” he said.

First steps. Like the majority of attendees, Kettelle said the Ag Advisory Committee meeting was positive. In his opinion, however, there is still a long way to go.

“We are here in the department of equalization,” he said. “And I just want to be treated equally.”

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2 COMMENTS

  1. Hello Brian:

    We reviewed comments, notes and pressed releases from the 3/5 ODT/CAUV Advisory Committee meeting at our Ashtabula Task Force. There are 3 glaring problems.

    First, any changes ODT adopts in their final meeting in June will not affect tax bills until February 2018. A rule change needs to be adopted to get these changes into our 2016 tax bills.

    Second, the proposed Woodland clearing cost and drainage cost deductions are too low and can’t have significant impact until the artificial CAUV minimums are reduced or eliminated. There was widespread publicity the proposed changes would be up to 54% reduction (of the 2014 increase) for woodlands but the releases don’t say for woodlands already at CAUV minimums that would be a 0% reduction. Most of the heaviest forested counties in Ohio have CAUV at woodland minimums (aka an artificial limit) which prevents the full value of deductions from providing a benefit. So woodland owners may feel a false sense that there is more progress than there is until the reality check comes when they see, 2016, 2017 and 2018 tax bills.

    Third, widespread publications say farmers would get a 26% reduction on cropland with the proposed changes based on the predominant soil type in Ohio. However when an Ashtabula vegetable farmer computed the protential savings it came out to 8.5%.

    I agree there is a lot of work to be done with Risk, Minimums and better oversight of ODT right at the top of the list. We made 9 suggestions to ODT. Shelley Wilson answered back thru our Chairman Represtative John Patterson we should pursue the $0/acre CAUV for Woodlands thru the Ohio legislators. The other 8 were rejected but ODT welcomed followup questions thru John Patterson. Also we see Ohio Farmer Bureau willing to keep pursuing several of these suggestions which are resonating across the state.

    Fred Pierce-Ruhland

  2. Ms Wilson is severely mistaken if she thinks I asked to change the millage charged to farmers. All I asked for was to be given credit for the actual taxes paid. The formula uses the state average millage of 43 mils. In Trotwood it is 102 mils. We don’t get credit for paying the difference. That is the phantom profit we are being taxed on. This change alone would lower our tax bill by over 20%.

    Counties being revalued this year will be shocked to see their values increasing 130% even with the changes accepted so far. We desperately need the Taxation department to adopt the Band of Investments method and provide each farm credit for their actual millage. This is an emergency and without immediate change farms bankruptcies will certainly be on the rise next year.By then it will be too late.

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