According to a recent Cleveland Plain Dealer article, Ohio farmers are seeing significant spikes in their property taxes – as much as 400 percent – even though grain prices, primarily corn and soybeans, are crashing. The article blames Ohio’s current agricultural use value (CAUV) calculation methodology, which relies on previous years' prices and not what farmers are now getting for their grain. In recent years, thanks to favorable growing conditions and technology, bumper crop yields have benefitted farmers, but during 2014, prices have fallen.
Here are some facts about the CAUV, as detailed in a fact sheet created by the Ohio State University Extension (OSU).
What the CAUV is and how it is calculated
- The CAUV is a differential real estate tax assessment program that provides owners of farmland with the opportunity to have their parcels taxed according to their value in agriculture, rather than full market value;
- It is the result of a referendum passed by Ohio voters in Nov. 1973;
- The Ohio General Assembly subsequently passed Senate Bill 423 in April 1974, establishing CAUV program by law.
Current agricultural use values for taxing farmland are determined by calculating the farm's projected gross income from agricultural production, subtracting projected non-land production costs to get the farm's net income, then dividing this by an adjusted capitalization rate to arrive at the farmland's agricultural worth.
Pros and cons
OSU recognizes that the CAUV inspires public debate. Those in favor of it cite these benefits:
- It corrects inherent unfairness to farmland owners in the real estate tax system. The premise for this argument is that farmers use relatively few local public services, which are funded via local real estate taxes. Because farmers often own the largest amounts of land in rural taxing districts, they would be taxed at a rate that is unfair relative to their usage of the public services.
- Farmers generally pay a higher portion of their income in taxes than do other sectors, so reduced taxes help prevent farmers from being pushed out of business due to increasing operating costs. Even though developers offer advantageous deals that lure some farmers to sell, tax incentives can preserve long-term food security, protect wildlife habitat and groundwater recharge, and mitigate flooding, which are important reasons to continue farming Ohio land.
Those against the CAUV offer these arguments:
- The CAUV is inefficient because land is not taxed according to its full market value.
- It is unfair because it shifts the local property tax burden to residential, commercial, and industrial users of lands who are not eligible for special treatment (assuming service costs remain the same).
The CAUV affects millions of acres in Ohio
The CAUV is in effect in all 88 counties in Ohio, with over six million acres enrolled. This ranges from just several dozen acres in Cuyahoga County to several tens of thousands of acres in some of the state's northern and western rural counties.
Other states that use a tax relief program for farmland
All states have some form of agricultural tax relief programs. Some utilize a system similar to Ohio’s, referred to as a differential assessment, where the farmland is assessed at its agricultural use value rather than its fair market value.
The other category, the circuit breaker program, allows farmers to claim state income tax credits to offset their local property tax bills when they exceed a certain percentage of household income.