Proposed changes in the CAUV formula
After consultation with various experts, the Ohio Farm Bureau has sent to the Ohio Department of Taxation the following proposed changes to the formula that determines how working farmland is valued for tax purposes:
- Use an interest rate in the formula that more accurately reflects the kinds of loans taken out by farmers. The current formula uses a 15-year fixed loan, which is now rare for farmers, according to Leah Curtis, the farm bureau's director of agricultural law. A more common 25- or 30-year loan would have a higher interest rate, which in turn would help lower the formula's assessed value on cropland, Curtis said.
- Waiting a few months longer during the revaluation years to get the previous year's data on crop values, cropping patterns and yields. Currently, the state uses values that are two years old, which is hurting farmers facing property valuations this year because crop prices have dropped.
- Use larger discounts for woodlands. Currently, the state gives farmers a $500 an acre discount for farmland that is kept in woods and not farmed, and up to $500 an acre to drain the land. Curtis said both of those set prices are outdated and don't reflect the true cost of clearing woodlands. As a result, farmers are getting overtaxed on land they keep in woods, according to the farm bureau.
Changes are in the works to help farmers reeling from soaring property tax bills, but it may be years before farmers like Bruce Kettelle of Trotwood see any relief.
Officials say farmers in the 41 counties that conducted property revaluations this year — including Montgomery, Butler and Greene counties — likely will be stuck with the new tax bills until 2017.
Kettelle, who is also a Trotwood city councilman, is one of many farmers across the state hoping for last-minute relief from the state before January. The appraised value of the 219 acres of cropland he farms with his partner Elizabeth Eby is set to more than double — from $263,000 in 2011 to $581,000 this year.
“We’ve had a lot of sleepless nights since we opened that mail, trying to figure out what we’re going to do about this,” Kettelle, 60, said of the preliminary notification they received last summer. He estimates the taxes on their farm will hit more than $23,000 — more than he and Eby make in profit off the farm in a year.
“When that tax bill comes out, it will be too late to change anything,” Kettelle said. “And when that tax bill comes out, there will be a lot of farmers who will be very upset.”
Why the change?
Property taxes on farmland are skyrocketing because a combination of economic and crop-price conditions have affected state calculations designed to keep working farms from being taxed as possible subdivisions. The so-called Current Agricultural Use Value (CAUV) formula, which was adopted in the mid-’70s, has historically kept appraised values on cropland at a small fraction of its market value.
Active cropland in Montgomery County, for example, was appraised at an average of about a quarter of its market value from 1996 through 2013, data from the Ohio Department of Taxation shows.
That kept tax bills down because the average agricultural use value per acre was $882 during the 18-year period while the average market value set by the Montgomery County Auditor’s Office was $3,560 per acre.
But the agricultural use value soared this year — more than doubling to an average value in the county of $3,351 an acre. Meanwhile, the market value climbed to an average of $5,065 an acre, according to Montgomery County Auditor Karl Keith’s office.
That means the CAUV will now set the farmland value at two-thirds of market value.
The sharp rise, according to experts, is a result of high crop prices during recent years (which have plummeted this year) and continued historically low interest rates. Both result in higher CAUV values, and thus higher property tax bills.
Proposed changes
The Ohio Farm Bureau and the Ohio Farmers Union this month have sent the Ohio Department of Taxation recommendations for changes to the CAUV formula, including adjusting the interest rate calculation used in the formula, using more up-to-date crop prices and giving farmers a higher discount for maintaining woodlands.
Leah Curtis, director of agricultural law for the bureau, said the changes are administrative in nature and would not require legislation.
But some farmers are pushing Gov. John Kasich and the Ohio General Assembly to step in.
Ted Finnarn, secretary-treasurer of the Darke County Farmers Union, and a member of the state committee that originally designed the CAUV formula, has been collecting signatures on a petition to Kasich and the legislature to address the “unprecedented and unfair” increase in property taxes on farmers.
Finnarn, who has served on the Department of Taxation’s CAUV Advisory Committee since the mid-’70s, predicts there will be changes to the formula, but he says they won’t likely provide immediate help to farmers like Kettelle, who are facing big tax increases in January.
Finnarn said it is probably too late put a freeze on farmland tax values at the current level as Kettelle and others are hoping.
“They could have,” he said of the state Department of Taxation. “But they would have had to do that a couple months ago. They could have frozen the values, or they could have changed the formula in 2014 like they’re going to in 2015, and the values would have gone down.”
Finnarn worries about the small farm owners that will have trouble handling the increased tax load.
“We certainly don’t want to lose farmers during this interim period before we get the formula corrected and have these skyrocketing taxes,” he said.
‘Potential softening’ of values expected
Shelley Wilson of the Ohio Department of Taxation confirmed that her department is contemplating making changes to the formula, which could lead to a “potential softening” of farmland values, she said.
But Wilson, the executive administrator of the department’s Tax Equalization Division, said the values can’t be frozen at the current level because it’s too late in the process.
“I understand that the taxpayers think there’s something wrong with the formula, because there are some very vocal people out there who are saying the formula’s broken,” Wilson said. “The thing is, it isn’t. The problem is that interest rates are low and crop prices have been high in recent years. And those are the inputs that drive the calculation.”
Kettelle, who wrote a four-page letter to Wilson’s division that included 11 suggested changes to the CAUV calculations, is frustrated over what he sees as a lack of urgency.
“It’s just nuts that they’re sitting here going, they agree that the formula is wrong but they’re going to let it go forward,” Kettelle said. “And it’s going to cost us thousands of dollars for the next three years because they can’t move quick enough.”
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