differential tax assessment
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.
Tags: differential tax assessment, cauv, property tax, real property tax, real property law
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Written 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 February 7, 2017. 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.
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:
- 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.
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.
To read SB 36, visit this page. For more information on previous CAUV bills, see our previous blog post.
Tags: cauv, current agricultural use valuation, differential tax assessment, real property tax
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Legislation proposing changes to Ohio’s current agricultural use valuation (CAUV) program has remained on hold in the General Assembly since last fall. Senator Cliff Hite (R-Findlay) and Representative Brian Hill (R-Zanesville) introduced the companion bills on November 18, 2015. The Senate referred its bill, SB 246, to the Senate Ways and Means Committee on December 9, 2015 and House Bill 398 was referred to the House Government Accountability and Oversight Committee on January 20, 2016. Neither committee has acted on its bill.
Taking up Ohio Farm Bureau’s recommendations, the bill sponsors target two aspects of the CAUV program—the formula used to determine CAUV values and the valuation of land used for conservation practices or programs. To create more accurate valuations, the legislation proposes several changes to the CAUV formula:
• 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.
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.
To access the bills and follow their status in the Ohio legislature, visit HB 398 here and SB 246 here.
For an explanation of the CAUV formula, see our Tax Bulletin "Why did my CAUV values increase so much?" available here.
Tags: cauv, current agricultural use valuation, differential tax assessment, real property tax
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