Current Agricultural Use Value Background

Ohio has maintained the Current Agricultural Use Value Program (CAUV) as a property tax incentive for farmers to continue agricultural production on their land instead of developing it due to urbanization pressure since the early 1970s. The program also provides a public good by preserving farmland and/or open space. Programs for assessing agricultural land at different values and/or rates is not unique to Ohio as all states have some form of differential tax treatment for agricultural land. Use-value assessment of agricultural land began with Maryland in 1960 while the last state to adopt a program was Wisconsin in 1995 – Ohio was the 27th state to adopt (Anderson and England 2014). States differ in their process for assessing agricultural land at their potential use-value which take the form of roughly three approaches:

  1. A percentage reduction from fair market value (e.g., Georgia, Minnesota, and Mississippi)
  2. Capitalization of average cash rental rate (e.g., California, Tennessee, and Virginia)
  3. Capitalization of net income approach (e.g., Illinois, Iowa, and Pennsylvania)

However, some states combine the capitalization of average cash rental rate and net income approach (e.g., Kentucky, Indiana, and North Carolina). In Ohio, valuation of agricultural land enrolled in CAUV is through the capitalization of net income approach which approximates a soil’s agricultural capabilities rather than the market value of land:

Current agricultural use values for taxing farmland are determined by calculating the farm’s projected gross income from agricultural production, subtracting projected non-land production costs to get the farm’s net income, then dividing this by an adjusted capitalization rate to arrive at the farmland’s agricultural worth (Jeffers and Libby 1999).

The origins of the CAUV calculations began in the late 1970s as a way to approximate the net income derived from agricultural production and further capitalized by the effective interest on farmland loans (Chafin and Shaudys 1972). Data issues preclude knowing the net income of a farm and instead it must be estimated through expected yields and prices for typical crops for a soil type and its associated non-land costs (Duvick 1978). Based partially on the finding of Reiss (1969) that a direct correlation between soil productivity and net rents earned by Illinois farmland owners exists, the CAUV program uses soil type to determine the expected yields and this serves the basis for CAUV values. Shaudys (1981) described the tenets of implementing a program like CAUV for Ohio:

Basic elements for effectively implementing and administering any taxation system include: 1) administrative simplicity, 2) ease of understanding, and 3) acceptable administrative costs. An acceptable real property taxation system must be easily understood by both county administrators and taxpayers.

The method for estimating a capitalized income stream on agricultural land was developed by Chafin and Shaudys (1972) based originally on a soil productivity index and 8 land capability classes with slope, drainage, and erosion as the factors which determine the capability class. Figure 1 dislays the the first CAUV values we could find, which are from 1973. The soil productivity index for these CAUV values are different from the productivity indexes currently in use as the current productivity indexes range from 0-100 with 100 as the most productive. The index in use in 1973 was percentage based in that a productivity index of 100 was equal to state average while an index of 130 would be 30% more than the state average. Since the program was enacted in the early 1970s it has only grown in complexity.