Since our last legislative update in March, Ohio’s legislators and staffers have been busy introducing more legislation.  As of this morning, there are 332 bills that have been introduced by members of the Ohio General Assembly since January.  Some have already passed both the Ohio House and Senate, but most are still pending.  While we cannot write about every pending bill, the following bills relate to agricultural, local government, or natural resource law.  In addition to these bills that we have not yet covered, see the end of this post for an update about bills we mentioned in our last blog post.

Tax

• Senate Bill 183, titled “Allow tax credits to assist beginning farmers.”  Many agricultural news outlets quickly picked up on this bill.  The bill would authorize two nonrefundable tax credits.  One is for beginning farmers who attend a financial management program, while the other is for individuals or businesses that sell or rent farmland, livestock, buildings, or equipment to beginning farmers.  The Ohio Department of Agriculture would be responsible for certifying individuals as beginning farmers and for approving eligible financial management programs.  Click HERE for more information about the bill, and HERE for the current official bill analysis.
• House Bill 109, titled “Grant tax exemption for land used for commercial maple syruping.”  The bill would exempt “maple forest land” from having to pay property taxes.  The landowner would have to apply for the designation with the Ohio Department of Taxation.  Eligible lands are those lands bearing a stand of maple trees where 1) an average of at least thirty taps are drilled each year into at least fifteen different maple trees per acre of land, 2) the harvested sap is incorporated into a maple product for commercial sale, 3) the land is managed under a forest land maintenance plan, and 4) the property has ten or more acres or the sap harvest produces an average yearly gross income of more than $2,500.  Note that all four requirements must be met in order to qualify as an exempt maple forest land.  Click HERE for more information about the bill.

Real property

• House Bill 103, titled “Change law relating to land installment contracts.”  Ohio’s Land Installment Contract Law, which applies to contracts involving properties with a residence but not contracts involving only open farmland, would see some significant changes under this proposed legislation.  The bill would shift the burden of paying property taxes and homeowner’s insurance from the buyer to the seller.  The seller would also be prohibited from holding a mortgage on the property.  The contract would have to include provisions stating that the seller is responsible for all repairs and maintenance on the property.  Interest rates would also be capped so that the rate cannot exceed the Treasury bill rate for loans of the same length of time by 2%.  For example, if a 5-year land installment contract is entered into on September 7th and the 5-year Treasury bill rate on that day is 2.64%, the interest rate for the land installment contract would not be able to exceed 4.64% under this bill.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

Estate planning

• House Bill 209, titled “Abolish estate by dower.”  Dower provides a surviving spouse with rights in any real property owned by a decedent spouse.  This bill would end dower estates moving forward, but any interests that vest before the change would take effect would still be valid.  Click HERE for more information about the bill.

Local government

• Senate Bill 114, titled “Expand township authority-regulate noise in unincorporated area.”  A board of township trustees is currently limited to regulate noise coming from either areas zoned as residential or premises where a D liquor permit has been issued.  The bill would expand the township’s authority to regulate noise anywhere within the unincorporated territory of the township.  However, the bill does not affect another section of the law that exempts agriculture from noise ordinances, so agricultural activities would not be subject to any new noise ordinances, should this law pass.  Click HERE for more information about the bill, and HERE for the current official bill analysis.
• Senate Bill 12, titled “Change laws governing traffic law enforcement.”  Notably for townships, this bill would prohibit township law enforcement officers or representatives from using a traffic camera on an interstate highway.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

Regulation of Alcohol

• House Bill 181, titled “Promote use of Ohio agricultural goods in alcoholic beverages.”  The bill would authorize the Ohio Department of Agriculture to create promotional logos that producers of Ohio craft beer and spirits may display on their products.  Specifically, the bill would authorize an “Ohio Proud Craft Beer” and an “Ohio Proud Craft Spirits promotion.  Click HERE for more information about the bill.
• House Bill 160, titled “Revised alcoholic ice cream law.”  Under current Ohio law, those wishing to sell ice cream containing alcohol must obtain an A-5 liquor permit and can only sell the ice cream at the site of manufacture, and that site must be in an election precinct that allows for on- and off-premises consumption of alcohol.  This bill would allow the ice cream maker to sell to consumers for off-premises enjoyment and to retailers that are authorized to sell alcohol.  Click HERE for more information about the bill.
• House Bill 179, titled “Exempt small wineries from retail food establishment licensing.”  The bill would exempt small wineries that produce less than 10,000 gallons of wine annually from having to obtain a retail food establishment license in order to sell commercially prepackaged foods.  The sales of the prepackaged foods cannot exceed more than 5% of the winery’s gross annual receipts.  The winery would have to notify the permitting authority that it is exempt, and also notify its customers about its exemption.  Click HERE for more information about the bill.

Energy

• House Bill 20, titled “Prohibit homeowner associations placing limits on solar panels.”  The bill would prohibit homeowners and neighborhood associations, along with civic and other associations, from imposing unreasonable restrictions on the installation of solar collector systems on roofs or exterior walls under the ownership or exclusive use of a property owner.  Condominium properties would similar be prohibited from imposing unreasonable restrictions where there are no competing uses for the roof or wall space where a solar collector system would be located.  According to the bill analysis, an unreasonable limitation is one that significantly increases the cost or significantly decreases the efficiency of a solar collector system.  Individual unit owners would also have the right to negotiate a solar access easement.  Click HERE or more information about the bill, and HERE for the current official bill analysis.
• Senate Bill 119, titled “Exempt Ohio from daylight savings time.”  The bill would require Ohio to observe Daylight Savings Time on a permanent basis effective March 8, 2020.  The state’s clocks would spring forward in March, but there would be no falling back in the fall.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

As for the bills that we previously covered in our March legislative update, the following chart explains where those bills stand.  Those that have passed at least one chamber have their passage status underlined in the column on the right.  Those that have had at least one committee hearing list the number of hearings, while those that have not had any activity in committee state only the committee that the bill has been referred to from the floor.

When we are not on the road presenting, in the classroom teaching, or keeping up with the news for the blog, our team is busy working on large scale research projects for the Agricultural & Food Law Consortium.  One of our recent projects looked at how states assess farmland for property tax purposes, and we then created a compilation of every state’s laws on this topic.  Based upon the research, we found that property taxes are a fact of life for virtually all landowners in the United States, but that each state uses a “differential tax assessment” for agricultural lands.

What exactly is a differential tax assessment?  Many Ohio farmers know about and use Ohio’s special property tax assessment known as CAUV, which is short for Current Agricultural Use Valuation.  Instead of assessing property taxes on the basis of the market rate for developable land, CAUV uses a different formula that assesses the land on its value for agricultural production.  CAUV is a form of differential tax assessment.

While each state utilizes differential tax assessments for agricultural lands, they use different definitions of agriculture, different formulas, and different application processes.  Some areas of law utilize model acts that states may adopt in order to make it easier to do business across state lines.  Differential tax assessments of agricultural land do not have a model act, so each state’s language reflects the culture, norms, and conditions of the respective state at the time the state adopted or amended its differential tax assessment.

An example close to home illustrates what this means.  Under Ohio Revised Code § 5713.30(A), agricultural use means commercial animal or poultry husbandry, aquaculture, algaculture, apiculture, the commercial production of field crops, tobacco, fruits, vegetables, nursery stock, ornamental trees, and sod.  Commercial timber qualifies, but non-commercial timber only qualifies if it located on or next to land that otherwise would qualify for CAUV.  Exclusive use requires just that: the land is exclusively used for an activity listed as an agricultural use.  Lands of more than 10 acres that are exclusively devoted to agricultural uses qualify, but lands of less than 10 acres only qualify if the average yearly gross income exceeds $2,500 over the preceding three years.  That is an example of a definition of what qualifies as agriculture for the purposes of the differential tax assessment.

The differential tax assessment project compiled the approaches taken by all fifty states, and the compilations are available on the National Agricultural Law Center website HERE.  This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.

A landowner may present evidence regarding the value and acreage of his or her land, but the Board of Tax Appeals (BTA) is free to weigh that evidence as it wishes, according to the Ohio Supreme Court.  All seven justices agreed that the BTA in the case of Johnson v. Clark County Board of Revision acted with appropriate discretion, although two justices did not sign onto the reasoning as to why the BTA acted appropriately.  The case involved a property owner’s challenge of the Clark County Auditor’s determination of Current Agricultural Use Valuation (CAUV) for property tax purposes.

Continue reading for more information about what CAUV is, how CAUV determinations and tax assessments can be appealed, what happened in the Johnson v. Clark County Board of Revision case, and the main takeaways from the Supreme Court’s decision.

What is CAUV?

CAUV permits owners of land devoted exclusively to agricultural uses to request that the county auditor assess property for tax purposes based upon the value of the land’s current agricultural use, rather than its true market value.  Since its inception, CAUV has generally provided landowners with qualifying property a lower tax bill than they otherwise would have using market value.  Ohio most recently changed the formula for CAUV in 2017.  If CAUV land is converted to a use that no longer qualifies for CAUV treatment, the land is again assessed based upon its fair market value and the landowner must pay to the county the difference between the CAUV value and the fair market value for the prior three years.  To learn more about CAUV, visit the Ohio Department of Taxation’s CAUV webpage here.

How can a CAUV determination be appealed?

First, if a landowner believes that all or part of his or her parcel qualifies for CAUV, an application must be submitted to the county auditor where the land is located.  County auditors are the “chief assessing officers of their respective counties” and have the authority, within the guidelines of the state tax commissioner, to make the initial CAUV determination under Ohio Revised Code § 5715.01(B).  Landowners should contact their county auditors about filing instructions.

Second, the procedure to appeal whether land qualifies for CAUV is different than the procedure to appeal a tax valuation assessment.  If a landowner does not agree with their county auditor’s determination as to whether or not land qualifies for CAUV, they have thirty days to file an appeal with their county court of common pleas under Ohio Revised Code § 929.02(A)(2).  Decisions of courts of common pleas can be appealed to the state district court of appeals, and those decisions can be appealed to the Ohio Supreme Court.

If a landowner does not agree with their county auditor’s valuation assessment, the landowner may file a complaint with their county Board of Revision.  The forms for these complaints are generally available at the county auditor’s office or website.  If a Board of Revision believes that the county auditor made an error in applying the CAUV statute and rules, the board has the authority to revise tax assessments.  If the landowner still does not agree with the Board of Revision’s decision, he or she may appeal to the Ohio Board of Tax Appeals within thirty days of the Board of Revision’s decision under Ohio Revised Code § 5717.01.  More information is available on the BTA’s website here.  Alternatively, under Ohio Revised Code § 5717.05, the landowner may appeal the Board of Revision’s decision to the appropriate county court of common pleas.

Decisions of the BTA can be appealed to the respective state district court of appeals where the land in question is located, and those decisions can be appealed to the Ohio Supreme Court.  However, there are certain cases in which landowners can appeal decisions of the BTA directly to the Ohio Supreme Court under Ohio Revised Code § 5717.04.  However, the types of appeals of a BTA decision eligible for direct appeal to the Ohio Supreme Court were reduced in September 2017 through House Bill 49.

What happened in Johnson v. Clark County Board of Revision?

Mr. Johnson challenged the Clark County Auditor’s 2013 tax assessment of his 154.61 acre farm.  Neither party disagreed that the land qualified for CAUV, but Mr. Johnson disagreed with how much the Clark County Auditor said the farm was worth under the CAUV formula.  For tax year 2013, the auditor assessed the property’s CAUV at $457,250.

Mr. Johnson appealed to the Clark County Board of Revision.  He testified, and also elicited testimony from an employee of the Clark County Soil and Water Conservation District and an employee of the Clark County Auditor’s office.  Further, Mr. Johnson presented photographs, official records from the tax commissioner and auditor, and a “self-prepared written statement purporting to convey [the SWCD employee’s] site-visit findings.”  The Board of Revision rejected Mr. Johnson’s claims.

Mr. Johnson then appealed to the Ohio Board of Tax Appeals.  Again, Mr. Johnson testified and produced a number of exhibits.  At this appeal, he elicited testimony from an employee of the Ohio Department of Taxation.  The BTA also rejected Mr. Johnson’s claims, finding that the Clark County Auditor had acted appropriately.  Mr. Johnson then filed an appeal to the Ohio Supreme Court in 2016.  Mr. Johnson represented himself pro se, or without an attorney.

What are the main takeaways, and why did the landowner not succeed?

First, the Ohio Supreme Court explained that a landowner challenging a Board of Revision or Auditor’s tax assessment must convince the BTA that his or her valuation assessment is correct and the one they are challenging is incorrect.  This requirement to convince the Board of Tax Appeals is known as the burden of proof.  The burden of proof determines which party must play an active role in proving his or her argument, while the opposing side will only have to present proof to counter if the board finds that the first party has carried its burden.  Here, the court said that Mr. Johnson, as the landowner challenging the assessment, had the burden to convince the BTA.  The court disagreed with Mr. Johnson’s argument that the county should have to rebut his evidence and prove the value that it assessed.

Second, even though the BTA properly said that Mr. Johnson had the burden of proof, this does not mean that the BTA should have presumed the Board of Revision’s decision to have been correct.  Instead, the BTA must independently analyze the evidence presented to it, and not simply defer to and accept the Board of Revision’s decision.  Here, the Ohio Supreme Court found that the BTA did conduct an independent assessment in confirming the Board of Revision’s determination.

Third, while an owner may present evidence as to the value of his or her land, a BTA has discretion to determine how much weight to give to that evidence.  An owner’s opinion as to the value of his or her land is not determinative, but is merely a piece of evidence that the BTA may consider.

Fourth, instead of looking at the acreage, the focus of the assessment should be on boundaries and a property’s uses within those boundaries.  The Ohio Supreme Court explained the distinction between calculating acres and delineating boundaries by using dictionary definitions, and the distinction is essentially that a bounded area is fixed in space, while acreage alone describes an area without a specific line of demarcation.  To prove that a parcel or portion of a parcel qualify for CAUV treatment, the boundaries of the qualifying land must be determined.  Acres can only be determined after the boundaries are established.  Here, Mr. Johnson did not prove the boundaries of CAUV areas on his land to the BTA’s satisfaction, and the Ohio Supreme Court said that it was within the BTA’s discretion to reject Mr. Johnson’s evidence.

The Ohio Supreme Court’s full opinion, cited as 2018-Ohio-4390, is available here.  Additional facts about the case can be found within the court’s opinion.

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

Governor Kasich signed HB 49 on June 30, 2017, otherwise known as Ohio’s Operating Budget. In addition to setting the budget for various agencies, HB 49 changes how farmland is valued under Ohio’s Current Agricultural Use Value program. HB 49 changes Ohio Revised Code Sec. 5715.01. The overall effect of the changes will likely be a downward trend in property tax valuation for Ohio farmers.

The budget bill prescribes the method for determining CAUV value for land devoted to agricultural use. The law requires appraisal methods to reflect and consider the following:

• standard and modern appraisal techniques that take into consideration the productivity of the soil under normal management practices;
• typical cropping and land use patterns;
• the average price patterns of the crops and products produced;
• typical production costs to determine the net income potential to be capitalized; and
• other pertinent factors.

Under HB 49, the Tax Commissioner must annually determine and announce the capitalization rate used to compute CAUV values. The bill directs the Tax Commissioner to use standard and modern appraisal techniques in determining the land capitalization rate to be applied to the net income potential from agricultural use. In determining this yearly rate, the Commissioner must use an equity yield rate equal to the greater of the average of the total rates of return on farm equity for the last 25 years (as published by USDA), or the loan interest rate the Commissioner uses for that year to calculate the capitalization rate. The Tax Commissioner is required to assume that the holding period for agricultural land is twenty-five years for computing buildup of equity or appreciation with respect to that land.

HB 49 requires that land used in conservation programs be valued at the lowest soil productivity type. However, if land devoted to a conservation program ceases to be used for conservation purposes within three years of certification, the land will be valued at its actual soil type for all preceding years.

The Tax Commissioner must publish an annual report of CAUV values that can be sorted by county and by school district. The changes to CAUV begin in 2017, starting with counties undergoing reappraisal for the 2017 tax year. The budget bill, as signed by the Governor, is here—see page 2145 of that document for the changes to CAUV.