Many people have questions on the property tax increase seen on bill received January 2015. By state law, every 6 years, property must be re-appraised by actual visits. A “fair market value” is established for each property. Fair market value is defined to be the value that land would transfer between a willing seller and a willing buyer in an arms-length transaction. Foreclosure sales, public auctions and sales between family members are not considered arms-length transactions. To establish the fair market value, each component for every parcel is assigned a value. The four components are:
- 1. the home
- 2. a one-acre home site
- 3. any other outbuildings on the property
- 4. any other land
Because property values were rapidly increasing in the 1960’s and 1970’s, a law was passed in 1976 that established the triennial update. This law requires county auditors to adjust property values every third year after a reappraisal. The difference between a reappraisal and a triennial update is that the reappraisal is based upon an inspection of the property and a triennial update is determined in the auditor’s office and is based upon sales of property in the county. The changes at this time are due to the “triennial update” which occurs 3 years after appraisal.
However, “farm” property is not taxed at the full appraised (fair market) value, but at a discounted “Current Agricultural Use Valuation” (CAUV) based on soil type. Enrollment in CAUV must be done through the county auditor’s office and owners must file a renewal each year.
CAUV began in 1972 when Ohio voters approved a constitutional amendment. The home, home site and outbuildings are still valued at fair market value. The Ohio Department of Taxation calculates CAUV values annually and sends the values out to the auditors. The auditors then use the CAUV values, as determined by the Ohio Department of Taxation, for those years when the county does a reappraisal or an update.
HOW IS CAUV CALCULATED?
The CAUV values are based upon a formula containing five factors applied to three crops: corn, soybeans, and wheat. The five factors are:
- 1. Cropping pattern- based upon the slope of the soil: level ground weighted towards corn and beans; steep slope weighted towards wheat and hay.
- 2. Crop prices- based upon a survey of elevators in Ohio
- 3. Crop yields- based upon FSA yields per acre for each soil type.
- 4. Non-land production costs- based upon farmer surveys by The Ohio State University.
- 5. Capitalization rate- based upon the interest rate for a 15-year fixed rate mortgage at Farm Credit Services.
The crop prices, crop yields, non-land production costs and capitalization rate are calculated by taking the previous seven years of numbers, eliminating the highest number and the lowest number, and then averaging the remaining five numbers. The first four factors are then added and subtracted to determine the net profit per acre of soil type, and that number is then divided by the capitalization rate. This calculation is performed for each of the 3500 soil types in Ohio.
In 2014, Ohio Farm Bureau and others developed recommendations to the Ohio Department of taxation and the state legislature to update the CAUV formula to better represent ag economy factors, to decrease the “lag time” in data used in the formula and use factors with current financial data. The updates would make the formula more relevant and realistic to what farmers are experiencing in the ag economy today.
To ensure you are kept in the loop on CAUV and other issues; please share your email with Farm Bureau. If there is a call to action to write your state legislators, you’ll be the first to know!
For Farm Bureau members, online resources are available to further explain CAUV and the fluctuations.