COLUMBUS, Ohio — The Ohio Farm Bureau Federation (OFBF) has presented its official recommendations to the Ohio General Assembly and Joseph W. Testa, state tax commissioner, it believes will improve and modernize the Current Agricultural Use Value (CAUV) program.
Under CAUV, farmland is taxed on its agricultural productivity rather than its development value. "There are a lot of farmers and landowners facing huge increases in their tax bills at the same time their incomes have fallen drastically," said Jack Fisher, OFBF executive vice president.
Because Farm Bureau identifies as a leading resource of information for landowners, county auditors and members of the General Assembly, the organization constantly reviews and evaluates the CAUV formula to ensure that farmland is being accurately valued. The process intensified this year.
"Our primary goal is preserving the integrity of the CAUV program," Fisher said. "But we also know there are areas where the CAUV formula could be modernized and improved."
Following extensive research and meetings with tax experts, state and local tax officials, accountants, attorneys, appraisers, farmers, landowners and other stakeholders, OFBF identified and recommended a number of specific adjustments to the formula that will improve and strengthen the program. The changes, when enacted, would be implemented for 2015 values and affect taxes paid in 2016 and beyond.
Stopping short of a full endorsement, Testa late last month said the Farm Bureau’s recommendations to modernize the state’s CAUV property tax formula have a good deal of merit.
"There is a lot in the recommended changes that I feel would not be troubling to us," he added.
At the heart of this effort are four key recommendations to the General Assembly.
First, OFBF wants to see improvement in the accuracy of the capitalization rate used in the formula by amending the debt/equity split to 80 percent debt and 20 percent equity, to more accurately reflect the marketplace.
The current formula assumes a landowner will provide a 40 percent down payment on purchased land and finance the remaining 60 percent, which is not the typical financing arrangement for farmland.
Second, AFBF would like to see improvement in the accuracy of the capitalization rate used in the formula, by increasing the loan term to a 25- to 30-year fixed loan rate. According to Fisher, the current formula uses a 15-year term, which would generally be at a lower interest rate. Having a 25- or 30-year term would increase the capitalization rate, and therefore lower values.
Next, OFBF would like to improve the accuracy of current use values by using more timely data in the formula that will more accurately reflect the current state of the farm economy. It stated this can be accomplished by releasing final values in May of the current year, after updated budgets, yield data, price data and rotation data become available. Now, there is a two-year lag in the formula for most data points.
Finally, OFBF wants to improve the accuracy of woodland values by updating and increasing the conversion costs deducted from cropland values to accurately reflect the true cost of concerting woodland to cropland.
Current deductions are $500 for clearing and $500 for tile drainage. Farm Bureau’s suggestion is to use more current cost data to update these costs, which would have the effect of lowering the value of woodlands that are not already at minimum value.
OFBF’s recommendations can be accomplished through administrative action and will not require legislation, it says.
Testa said his office is seeking input from members of the CAUV agricultural advisory committee before the end of the year to allow for implementation by 2015, which would affect taxes paid in 2016.
The advisory committee, which includes representatives from the OFBF, the Farmers Union, the Grange, the Ohio State University Department of Agricultural Economics and a representative from the Ohio County Auditor’s Assoc., normally meets in February.
