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CAUV allows farmland to be taxed on agricultural production value PDF Print E-mail
Wednesday, November 06, 2013 9:00 PM

Ed Lentz, Hancock County Extension Educator wrote the following article on CAUV.

 

Current Agricultural Use Value (CAUV) is a real estate tax assessment program that allows farmland to be taxed on an agricultural production value rather than the full real estate market value. In most situations, CAUV results in a considerably lower property tax bill for owners of farmland compared to the market value rate. Current Agricultural Use Value has been in place for almost four decades.

Landowners must meet one of the following requirements for three years prior to submitting an application to qualify for CAUV:

— Ten or more acres must be devoted exclusively to commercial agricultural use; or

— If less than 10 acres are devoted to commercial agricultural use, the farm must produce an average yearly gross income of at least $2,500.

Agricultural use considers three definitions:

— Commercial animal or poultry husbandry; aquaculture; beekeeping; the production for a commercial purpose of timber, field crops, tobacco, fruits, vegetables, nursery stock, ornamental trees, sod, flowers or the growth of timber for a noncommercial purpose (if the timber is contiguous to or part of land devoted to agricultural use).

— Biodiesel production, biomass energy production, electric or heat energy production or biologically derived methane gas production if the land on which the production facility is located is contiguous to or part of land devoted to agricultural use.

— Land devoted to and qualified for payments or other compensation under a land retirement or conservation program.

The CAUV process considers farm income and expenses to determine taxes. Farm income takes into account yield levels for a given soil type (determined by the state), yield averages for previous years and crop price averages for previous years. Production costs include averages from previous years’ inputs such as seed, fertilizer, fuel oil, repairs, drying fuel and electricity costs, fuel for trucking, labor charges, and machinery and equipment charges based on Ohio State University’s Extension Crop Enterprise Budgets. These costs are five-year averages of farm inputs.

CAUV are determined for a set number of years for each county, which is often referred to as a cycle. At the end of a cycle, farmland’s agricultural worth will be re-evaluated and a new CAUV will be established for the next cycle. Since crop prices have generally been much higher the last couple years, CAUV values have increased and thus the farm real estate tax bill is higher. Depending on the farm income and input costs of the previous years, CAUV adjustments may go up or down for the next cycle. More detailed information may be found in the Extension bulletin CDFS 1267 Current Agricultural Use Value Assessment in Ohio (ohioline.osu.edu/cd-fact/1267.html) and at the office websites of most county auditors.

How Is CAUV Calculated?

A capitalization rate is needed to determine a parcel’s current worth to its owner or the rate at which net income is captured in value of the land to be taxed. The capitalization rate for CAUV purposes is based on: 1) the average Farm Credit Service rate on a loan amounting to 60 percent of assets, payable over 15 years, and 2) the previous five years’ average interest rate applied to the remaining 40 percent of assets in equity. With certain adjustments, this yields the capitalization rate before taxes.

To illustrate, say a farm is found to have soils such that its typical cropping pattern is 50 percent corn and 50 percent soybeans. If the average yield per acre is 160 bushels of corn and 60 bushels of soybeans, the typical acre would have a projected yield of 80 bushels of corn and 30 bushels of soybeans. If over the previous five years, the average price of corn is $3 per bushel and the average price of soybeans is $8 per bushel, then the projected gross income for that acre would be $240 from corn and $240 from soybeans for a total of $480. If non-land production costs have been determined to be $300 per acre, this would yield a projected net income of $180 on that acre.

If the capitalization rate is determined to be 10 percent, then the agricultural use value of that acre is $180/.10=$1800. The agricultural value based on income may be compared to the current market value which may be $7,000 to $10,000. CAUV is still a deal for farm land because the tax on the income ($1,800) is still much lower than taxes based on the real market value. However, do not be surprised if your farm real tax bill is much higher during this cycle.

 

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