Increases in real estate taxes are not popular. Voters may choose to increase those rates to support some public benefit such as a fire or rescue district, school building project or health levy. Still, paying the increase is rarely, if ever, something everyone cheers about. In numerous Ohio counties, taxes on farm real estate are increasing significantly beginning in 2012 due to the Current Agricultural Use Valuation (CAUV) law, even though in many cases, no new real estate tax issue was voted in last November. Why?

Farmers vigorously pursued the passage of the CAUV law back in the early 1970s. Real estate taxes were then often figured on the “highest and best” value of the land. Therefore, if an appraiser determined a value of a parcel of farmland should be based on its development potential, the real estate tax would be much higher than if it were based on its value for agricultural production. The amendment providing for CAUV was added to the Ohio Constitution in 1973 and finally benefited landowners in 1975.

With CAUV, the land value is set by capitalizing the anticipated net income from farm production. The result: the taxation of farm real estate is more fair and reasonable. Fast forward to the past several years. Farm income is up significantly, so the formula to calculate CAUV has resulted in similar increases in real estate taxes.

To find the CAUV of a farm, a soil map is used to determine the soil types present. The soil productivity index is then used as a reference in determining the value of that particular soil. Slope, erosion, drainage and flooding potential for the farm’s soils are all taken into consideration. Soil characteristics are utilized to estimate crop yields.

Average crop prices for five years, along with crop yields determine the average gross income for the farm. A five-year average of all costs except land rent, taxes and interest are deducted from the gross receipts to calculate the net return, which is then divided by a capitalization rate to determine the CAUV. Then the market value of buildings and building sites is added to come up with the total appraised value of the farm. The level of assessment is 35 percent of the appraised value. The following formula is used to figure the property tax.

•Appraised Value x 35 percent Tax Assessment = Assessed Value

•Assessed Value x Tax Rate = Gross Tax

•Gross Tax – (Gross Tax x Tax Reduction Factor) = Adjusted Gross Tax

•Adjusted Gross Tax – (Adjusted Gross Tax x 10 percent Tax Rollback) = Net Tax

Reappraisal of real property is done every six years for tax purposes. 

The appraisal is updated every three years following reappraisal or at any time the auditor finds that property has changed in value. If land is converted to a non-agricultural use, the auditor is required to recoup the tax savings for the previous three years.  

IMPORTANT fact: Owners must also pay recoupment if they fail to reapply for CAUV tax appraisal. Landowners must apply with the county auditor between the first Monday in January and the first Monday of March each year. Renewals are free, new applicants are charged $25. On the applications, the owner must ID the farm and certain characteristics, such as soil types, crops, buildings, etc.

For more information on CAUV, contact your county auditor. Keep in mind that CAUV helped moderate your real estate tax bill when farm income was low. Farm receipts and farmland values have risen significantly in recent years, the CAUV has increased as well. 

Readers with questions or comments for Roger Bender may write to him in care of this publication.