real property tax

By: Peggy Kirk Hall, Monday, July 03rd, 2017

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.

By: Peggy Kirk Hall, Monday, June 26th, 2017

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

Two separate bills concerning CAUV continue to be debated in the Ohio Legislature: Senate Bill 36 and House Bill 49. Ohioans may see changes to the CAUV program, if either bill passes the Legislature. Both bills aim to address rising CAUV rates for Ohio farmers. SB 36 changes the CAUV formula, making alterations to the capitalization rate and addressing the rate used for conservation land values. SB 36 passed in the Senate and is under consideration by the House Ways and Means Committee. The other bill that would address CAUV values—HB 49, is Ohio’s bi-annual budget bill. HB 49 similarly addresses Ohio’s rising CAUV values through proposed changes to the CAUV capitalization rate.

The difference between the two bills is that the budget bill will undoubtedly pass. That being said, the budget bill’s CAUV provisions may be cut from the final version.  On the other hand, there is no guarantee that the House will pass SB 36. There are several scenarios that may occur regarding the two CAUV bills in the Ohio Legislature.

Scenario #1: HB 49 (the Budget Bill) Passes with CAUV Provisions Included

In an earlier post, we explained  HB 49’s proposed changes to the CAUV program. HB 49 proposes changes to the CAUV program similar to those proposed in the standalone CAUV bill, SB 36. Although HB 49 currently contains amendments to the CAUV program, it is subject to change.

Passing a budget bill is a long and complex process.  Budget bills must start in the Ohio House of Representatives. The main purpose of a budget bill is to set the state’s operating budget, but such a bill may also include changes to Ohio laws. After the House passes a budget bill, the bill goes to the Ohio Senate. The Senate can pass the bill as written by the House, or the Senate may amend the bill and send their amended version back to the House.

The Senate passed their amended version of HB 49 on June 21. However, the House did not agree with the amendments. Therefore, the Senate and the House will soon hold a conference committee where both houses will meet and settle the differences between the two bills. Ohio’s budget is based on a fiscal year which ends on June 30. If passed, a new budget will go into effect July 1, 2017. Ohioans may soon learn if the state’s budget bill will enact changes to the CAUV program.

Scenario #2: SB 36 Passes and Changes the CAUV Program

Ohioans will soon find out if changes to the CAUV formula will be passed as part of HB 49. However, the CAUV provisions of HB 49 could still be removed before the bill passes. If CAUV changes are not passed via the budget bill, the CAUV formula could still be altered via SB 36.

SB 36 recently passed the Ohio Senate and is currently under consideration by the Ohio House Ways and Means Committee. The bill would make changes to Ohio’s CAUV formula, including the capitalization rate calculation and the rate used for calculating the value of conservation lands. For more information on SB 36, see our earlier blog post here.

The Ohio House can consider SB 36 until the end of the legislative session. The current legislative session ends on December 31, 2018. The House Ways and Means Committee may vote on SB 36 before the end of the session, or the bill could expire if it does not leave the committee before the end of the session.

The Legislature will soon meet in a conference committee to try and reach a consensus on the budget bill. HB 49 could pass as written or in an amended form that does not include any changes to CAUV. SB 36 may pass as written or amended as well. Conversely, it is plausible that neither bill could pass.  

Read S.B. 36 as amended here.  The Legislative Service Commission’s summary of the bill is here. The most recent version of HB 49, as amended by the Senate, is here.

By: Peggy Kirk Hall, Thursday, May 11th, 2017

Ohio's Senate has settled on its solution for fixing Ohio's CAUV formula. The Senate unanimously passed S.B. 36  yesterday after the Senate Ways and Means Committee adopted two amendments to the bill.  The legislation aims to stem recent increases in property taxes for farmland enrolled in Ohio's Current Agricultural Use Valuation (CAUV) program.   The Senate's bill will ensure that the CAUV formula "sticks to valuing farmland based on agricultural production," stated the bill's sponsor, Sen. Cliff Hite (R-Findlay). 

In addition to including new factors in the CAUV formula,  making changes to the capitalization rate calculation and addressing rates used for conservation lands (explained in detail in our earlier post on S.B. 36), the bill passed by the Senate yesterday contained two new provisions:

  • A three year phase-in of the changes to the CAUV formula, which would begin the first tax year after 2016 in which a county's sexennial appraisal or triennial update occurs.  The purpose of the phase-in is to reduce the financial impact of lowered property valuations on school districts.
  • Replacement of the seven year rolling average determination of the equity yield rate with an equity yield rate that equals the 25-year average of the "total rate of return on farm equity" determined by the United States Department of Agriculture but that cannot exceed the loan interest rate used in the debt factor of the capitalization rate computation.

Last week, Ohio's House passed legislation containing different solutions for revising the CAUV program in H.B. 49 (see our summary of H.B. 49 here).  Senate leaders yesterday indicated a willingness to work with the House to resolve the differences between the two bills.  H.B. 49 is now before the Senate Finance Committee.

Read S.B. 36 as amended here.  The Legislative Service Commmission's summary of the bill is here.

Posted In: Tax
Tags: cauv, agricultural tax law, real property tax
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By: Peggy Kirk Hall, Wednesday, February 08th, 2017

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

By: Peggy Kirk Hall, Monday, March 07th, 2016

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.

By: Peggy Kirk Hall, Wednesday, July 15th, 2015

Grain bins are “business fixtures” that are personal property not subject to real property tax, according to a decision issued today by the Ohio Supreme Court. 

The court case arose when the Metamora Elevator Company challenged the Fulton County auditor’s inclusion of grain storage bins in the company’s real property valuation.  Metamora filed complaints with the county Board of Revision, arguing that the grain bins are business fixtures that should not be included in the company’s real property assessment.   The Board of Revision disagreed with Metamora and the company appealed to the Board of Tax Appeals (BTA). 

The Fulton County BTA ruled in favor of the company, determining that grains bins are personal property and should not be taxed as real property.  The BTA reduced Metamora’s real property value by nearly $1.1 million, the value of the grain bins.  Fulton County requested a review of the BTA decision by the Ohio Supreme Court, which agreed to hear the case.   The issue before the Court was whether the grain bins are “fixtures” or “improvements” that are subject to real property tax or whether they are not subject to real property tax because they are “business fixtures” that qualify as personal property. 

Ohio Supreme Court’s reasoning

In its decision authored by Justice O’Donnell, the Supreme Court explained that the legislature amended the Ohio Revised Code in 1992 to clarify the historically “elusive” distinction between real and personal property in Ohio.  The court stated that the changes expressed a clear intent to identify fixtures as real property while defining business fixtures as personal property,  according to two of th revised sections of Ohio law:

  • ORC 5701.02(A), which states that “real property” includes “land itself * * * and, unless otherwise specified in this section or section 5701.03 of the Revised Code, all buildings, structures, improvements, and fixtures of whatever kind on the land.”
  • ORC 5701.03(B), which defines “business fixture” as “an item of tangible personal property that has become permanently attached or affixed to the land or to a building, structure, or improvement, and that primarily benefits the business conducted by the occupant on the premises and not the realty.  Business fixture includes, but is not limited to, machinery, equipment, signs, storage bins and tanks, whether above or below ground, and broadcasting, transportation, transmission, and distribution systems, whether above or below ground.

“Our analysis need go no further than to apply the expressed intent of the General Assembly to the undisputed facts of this case,” said the Court, and concluded that the legislature clearly intended for the term “business fixture” to include storage bins, and therefore to define storage bins as personal property not subject to real property tax.   

The Court rejected the two arguments advanced by the county, that property classification cases depend upon what constitutes an “improvement” under the Ohio Constitution and that it would be unconstitutional for the legislature to classify constitutional “improvements” such as fixtures or structures as personal property simply because the fixtures might be used in business.  Because the grain bins related more to the personal business than to the land, based on the definition of “business fixture” in ORC 5701.03, the Court saw no conflict between the personal property classification and the Ohio Constitution.

Implications for agriculture

Fulton County may not be the only county that classifies grain bins as real property for tax purposes.  Landowners who own grain bins should review their property tax records and determine whether the real property value includes the value of grain bins located on the parcel.  If the property tax does incorporate grain bin values, consult with the county auditor to discuss the situation.  Ohio law allows a county auditor to correct "clerical errors" made in the collection of real property taxes, although there is a question of whether inclusion of grain bins in the real property value constitutes a clerical error.  Ohio law also provides remedies for taxpayers who have overpaid taxes; landowners should consult with a tax attorney for guidance on these remedies.  Note that filing a complaint with the Board of Revision is not an option, as March 30 was the deadline for filing complaints for the current tax year.

The case of Metamora Elevator Co. v. Fulton Cty. Bd. of Revision, Slip Opinion No. 2015-Ohio-2807 is available on the Ohio Supreme Court’s website, here.

 

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