CAUV: Legislature taking another look

Tony Nye - OSU Extension

The spring-like weather we are enjoying is not a time to get “Spring Fever.” I still think Mother Nature is going to pull the rug out from under us at some point and we may regret all the nice mild weather we have had thus far.

But I am an optimist right now, so I will worry about that scenario if and when it comes. For now. I plan to take full advantage of it as long as I don’t have to start mowing the grass.

As nice as the weather has been for us this winter a topic that may get the hairs on the back of your neck to stand on end might be the mentioning of Current Agricultural Use Valuation, better known as CAUV.

As we all know, CAUV has been a huge topic for discussion the last couple of years. In a recent OSU Ohio Ag Manager article by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program, the Ohio Legislature is once again considering a bill regarding Ohio’s current agricultural use valuation (CAUV) program. CAUV permits land to be valued at its agricultural value rather than the land’s market or “highest and best use” value.

Senator Cliff Hite (R-Findlay) introduced SB 36 on Feb. 7. The bill would alter the capitalization rate used to calculate agricultural land value and the valuation of land used for conservation practices or programs. The bill has yet to be assigned to a committee.

Hogan notes the content of SB 36 closely mirrors the language of a bill meant to address CAUV from the last legislative session: SB 246. Introduced during the 131st General Assembly, SB 246 failed to pass into law. SB 246 proposed alterations to the CAUV formula which are identical to those proposed by the current bill: SB 36.

According to the Ohio Legislative Service Commission’s report on SB 246, the bill would have proposed changes that would have led to a “downward effect on the taxable value of CAUV farmland.” The likely effect for Ohio farmers enrolled in CAUV would have been a lower tax bill.

Due to the similarity between the two bills, the potential impacts of SB 36 on the CAUV program will likely be comparable to those of the previous bill. The proposed adjustment of the capitalization rate is likely to reduce the tax bill for farmers enrolled in CAUV. More specifically, the bill proposes several changes to the CAUV formula and they are as follows:

SB 36 states additional factors to include in the rules that prescribe CAUV calculation methods. Currently, the rules must consider the productivity of the soil under normal management practices, the average price patterns of the crops and products produced to determine the income potential to be capitalized and the market value of the land for agricultural use.

The proposed legislation adds two new factors: typical cropping and land use patterns and typical production costs.

Clarifies that when determining the capitalization rate used in the CAUV formula, the tax commissioner cannot use a method that includes the buildup of equity or appreciation.

Requires the tax commissioner to add a tax additur to the overall capitalization rate, and that the sum of the capitalization rate and tax additur “shall represent as nearly as possible the rate of return a prudent investor would expect from an average or typical farm in this state considering only agricultural factors.”

Requires the commissioner to annually determine the overall capitalization rate, tax additur, agricultural land capitalization rate and the individual components used in computing those amounts and to publish the amounts with the annual publication of the per-acre agricultural use values for each soil type.

SB 36 looks to remove disincentives for landowners who engage in conservation practices yet pay CAUV taxes at the same rate as if the land was in production, the proposed legislation:

Requires that the land in conservation practices or devoted to a land retirement or conservation program as of the first day of a tax year be valued at the lowest valued of all soil types listed in the tax commissioner’s annual publication of per-acre agricultural use values for each soil type in the state.

Provides for recalculation of the CAUV rate if the land ceases to be used for conservation within three years of its original certification for the reduced rate, and requires the auditor to levy a charge for the difference on the landowner who ceased the conservation practice or participation in the conservation program.

It will be interesting to see where this goes. I think we all need to watch closely and as well, communicate with our legislatures as it relates to CAUV change. For now, pay attention, watch closely and remember change will not happen quickly.

Tony Nye is the state coordinator for the Ohio State University Extension Small Farm Program and has been an OSU Extension Educator for agriculture and natural resources for 29 years, currently serving Clinton County and the Miami Valley EERA. Tony and his family also own and operate a small livestock farm in Washington Court House, raising purebred swine and meat goats.

Tony Nye

OSU Extension