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Ohio Farm Bureau proposes improvements to farmland tax rules

 

Under CAUV, farmland is taxed on its agricultural productivity rather than its development value.

“There are a lot of farmers and landowners facing huge increases in their tax bills at the same time their incomes have fallen drastically,” said John C. (Jack) Fisher, OFBF’s executive vice president.  

Because Farm Bureau is the leading resource of information for landowners, county auditors and members of the General Assembly, the organization constantly reviews and evaluates the CAUV formula to ensure that farmland is being accurately valued. The process intensified this year.  

 “Our primary goal is preserving the integrity of the CAUV program,” Fisher said. “But we also know there are areas where the CAUV formula could be modernized and improved. 

Following extensive research and meetings with tax experts, state and local tax officials, accountants, attorneys, appraisers, farmers, landowners and other stakeholders, Farm Bureau identified and recommended a number of specific adjustments to the formula that will improve and strengthen the program. The changes, when enacted, would be implemented for 2015 values and affect taxes paid in 2016 and beyond.  

OFBF’s recommendations include: 

1)      Improving the accuracy of the capitalization rate used in the formula by amending the debt/equity split to 80 percent debt and 20 percent equity to more accurately reflect the marketplace. The formula currently assumes that a landowner will provide a 40 percent down payment on purchased land and finance the remaining 60 percent, which is not the typical financing arrangement for farmland. 

2)      Improving the accuracy of the capitalization rate used in the formula by increasing the loan term to a 25- or 30-year fixed loan term. The formula currently uses a 15-year term, which would generally be at a lower interest rate. The 25- or 30-year term is generally at a higher interest rate, which would increase the capitalization rate and therefore lower values. 

3)      Improving the accuracy of current use values by using more timely data in the formula that will more accurately reflect the current state of the farm economy. This can be accomplished by releasing final values in May of the current year, after updated budgets, yield data, price data and rotation data become available. Currently, there is a two-year lag in the formula for most data points. This change would make the formula more current by using yield, price and rotation data from the immediately prior crop year and by using cost data from the current crop year.

4)      Improving the accuracy of woodland values by updating and increasing the conversion costs deducted from cropland values to accurately reflect the true cost of converting woodland to cropland. Current deductions are $500 for clearing and $500 for tile drainage. Farm Bureau’s suggestion is to use more current cost data to update these costs, which would have the effect of lowering the value of woodlands that are not already at minimum value.

OFBF’s recommendations can be accomplished through administrative action and will not require legislation.  

These recommendations, when enacted, will more accurately value farmland and provide a more stable, predictable tax amount for landowners to plan for in the future, Fisher said. “Most of all, we will maintain the integrity of the CAUV program, which for more than 40 years has been an excellent tool for preserving farmland through fair landowner taxation.”  

OFBF is continuing to research additional improvements to the formula and is working through its grassroots policy development process where members will analyze and debate tax policy issues such as CAUV. “We anticipate that further recommendations will surface through our ongoing policy development process,” Fisher said. 

Here are Ohio Farm Bureau’s additional CAUV resources.

 

 

Lynn Snyder 

Lynn Snyder is senior director of communications for Ohio Farm Bureau.