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CAUV: How it works and why taxes went up for farmers

The formulas used to determine soil value or rather the data the Ohio Department of Taxation uses to calculate those formulas are a large part of the reason farmers across the state saw major tax increases.

Missy Herrera

If you are a farmer, you need to know about CAUV, the Current Agricultural Use Value program. This is a state program that was added to the Ohio Constitution in 1972, and it offers tax breaks on agricultural land.

“CAUV is to provide for those who are doing commercial agricultural activities,” said Jackie McKee, Holmes County auditor.

At the time this program was proposed, farmland was being eaten by urban sprawl and commercial development. The original intent of the program was to help ensure that agricultural land stays in the hands of farmers. The CAUV program accomplishes this by taxing farmland according to the land’s agricultural capability and not fair market value.

When CAUV was first established, farmers were paying roughly 50 percent less than landowners who were paying taxes based on fair market value. Although this program has helped thousands of farmers all across Ohio, there have been some challenges along the way.

In 2005 CAUV tax reductions were at their lowest in Ohio’s history with farmers paying an average 10 percent of the tax they would have paid on land taxed at fair market value. Between 2010 and 2013, as soil values were updated across the state to reflect current agricultural trends, many farmers with land in this program saw their taxes skyrocket: at times by as much as 300-900 percent.

Those increases are big but keep in mind that farmers with land in CAUV are still paying less in taxes than they otherwise would. That is because CAUV tax rates are based on soil values, which are determined by the Ohio Department of Taxation. Within Ohio there are approximately 3,500 different soil types. Holmes County land features 126 of these soil types.

McKee provides us an example to illustrate how the tax break works. “Let’s say that the soil value is $2,500 an acre or $2,000 an acre. That’s what you are paying tax on, and market value could be $6,000 or $7,000 an acre, so it is still a considerable savings.”

The Ohio Department of Taxation uses a complex formula to determine the agricultural worth of each soil type. There are five factors that are used in this formula: crop yield information provided by the USDA and NRCS, crop prices as determined by surveys at Ohio elevators, nonland production cost data gathered by the Ohio State University, cropping patterns based on soil slope, and the capitalization rate, which is based on the interest rate for a 15-year fixed rate mortgage from the Farm Credit Service.

“When you are on CAUV, you are not paying taxes on market value of the land,” McKee said. “If you have a house, and your house is worth $100,000, then you are paying taxes on $100,000. With CAUV you are paying taxes on soil types.”

It is important to remember that this tax savings does not include things like dwellings or outbuildings, which are still taxed at fair market value.

The formulas used to determine soil value or rather the data the Ohio Department of Taxation uses to calculate those formulas are a large part of the reason farmers across the state saw major tax increases. For instance one of the issues the ODT ran into was the Farm Service Agency had not updated crop yield data since 1984 despite the fact crop yields were on the rise. When the ODT input current crop yield data into their soil value formulas, that caused tax rates to increase.

Going forward, tax savings will not be as large as they were a decade ago, but CAUV taxes will still be substantially less than taxes based on fair market value. In fact new CAUV rates released to Holmes County in 2016 showed only slight increases for some soil types and even a few decreases for other soil types. The ODT releases new rates every three years — in 2010, 2013, 2016 and 2019 in Holmes County — so the 2016 rates should hold steady for another couple of years.

If you would like to enroll in CAUV or check out current soil values, information can be found online at www.holmescountyauditor.org.

Published: February 15, 2017
New Article ID: 2017702159997