Saturday, August 23, 2008

To Be Or Not To Be (A Farm) . . . That is the Thousand $ Question

Twice in the past six months, political campaigns have exploded in accusations about candidates claiming and receiving a tax break for property that they claimed was a farm. Those accusations, along with our budget woes, led me to look into the law on this little-known tax policy, to see if we were giving away dollars we shouldn't be.

My conclusion: this cloudy issue definitely requires regular and proactive oversight and enforcement, but I'm confident that this oversight is being provided by the Hamilton County Auditor's Office.

The basic law: in Ohio, like most other states, property owners can have their properties assessed at a far lower rate if that property meets the standard to qualify for what is called the CAUV Program. The CAUV stands for the Current Agricultural Use Value of the property, which is generally going to be a lower assessed value than the full market value of the property. For a large property, the distinction can lead to tax savings in the tens or even hundreds of thousands of dollars. For smaller properties, it can mean hundreds or thousands of dollars in savings.

O.R.C. 5713.30 lays out the guidelines of how one qualifies for the CAUV. Essentially, the parcel of property must be devoted "exclusively to agricultural use," and that use must be commercial (ie. not a pet horse). Types of qualifying uses can include: animal or poultry husbandry, aquaculture, apiculture, the production for a commercial use of field crops, tobacco, fruits, vegetables, nursery stock, ornamental trees, sod, or flowers, and commercial timber. There is also a woodland provision, where a property with noncommercial timber that abuts a CAUV property also gets the lower tax rate. For all the details on these rules, and other of the fine details (and there are many), you can go to:

CAUV in Hamilton County: Hamilton County has about 28,000 acres that have CAUV status--more than 1,200 parcels of property. Collectively, the CAUV status of this property eliminates about $100 million in tax value from that land. Not suprisingly, most of the properties are situated on the more rural West Side of the County (Colerain, Crosby, Whitewater and Harrison Townships). But the area with the greatest amount of property value under CAUV status is Indian Hill.

The issue: It's quite clear that there's a huge incentive to claim CAUV status from a tax savings perspective. For an owner of a large property, in fact, spending some dollars to have your property meet the minimum legal standards of commercial agriculture can be worth far more than the investment because of the tax benefit. Because of this incentive, if not monitored or enforced proactively and intensively, this CAUV program could become a heck of a loophole around paying full value, particularly for large properties. This is especially important to watch closely in a county like our's, where farmland is disappearing and being converted into residential property.

My inquiry: My office took a close look at the process, and had a detailed discussion with the Auditor's staff, who oversee this complex and complicated law. We also took a close look at a sample of properties that benefit most from the CAUV status.

After doing so, I am confident that the Auditor's staff is getting the job done. In addition to reviewing the required annual applications for CAUV status/renewal (and rejecting those that do not qualify), the office conducts at least annual site visits to ensure the properties serve the agricultural/commercial purpose their owners claim they do. (If a property owner benefitting from CAUV is found by an inspection NOT to be in compliance, that owner must pay the full value of the property going back three years.) Positively, they have made the process even more proactive/intensive over the past year. And if there is a sale or subdevelopment of a property, they will also watch closely to ensure that the property remains CAUV-eligible.

Of the sample of properties my office looked at directly, the vast majority indeed appeared to be working farms or at least undertaking active agricultural activity of some sort (although we could only see them from the street). A few did seem to be dormant/fallow, or non-operating. But there is a provision that allows these properties to be fallow temporarily (one year), as long as there use remains consistent with the agricultural use (as opposed to being developed for a different purpose). I pointed a few of these out to the staff to look at more closely.

The bottom line is that this is definitely an area to watch closely and regularly to avoid any temptation to turn this law into a property tax loophole and windfall. But it's also the case that the standards to achieve this CAUV benefit are not that difficult to achieve (which is an issue of state law).

But as there should be, there's a process in place at the County that looks to be getting the job done in sorting out who really should qualify, and who should not--and it's gotten more robust over the past year.

I'll continue to keep a watchful eye on this issue. And as the Auditor offered to me, if there are ever any properties people have questions about, please forward them along to me.


Anonymous said...

Q. Does raising race horses or saddle horses qualify?
A.Yes. This is a type of animal husbandry. However, a race track does not qualify.

This is false on the auditors site.

Saddle horses must be commercial in nature. Raising for resale, etc.

Your polo or riding trail horse is recreation not commercial.


Anonymous said...

That was a great summarization of the issue.

Here would be my first questions - does the auditor verify the "commercial" nature of the land use via tax filings that reveal the profits or losses for the business standing. So, for example, under fed law, if a business losses money for 3 years it is no longer considered a "business" it is considered a hobby and the commercial claim is invalidated.

So the property must be visually verified to be fully used for agri-business and secondly, the financial records must support the claim also.

So - does the auditor review financial records regularly?

Anonymous said...

On the issue of profit or hobby, again, I checked the cauv form and it appears to let someone check agi use but not income generating. so in your review, did the properties you looked at have both boxes checked? and was appropriate documentation filed as to income levels?

Anonymous said...


Actually most documentation is weak at best. There is no contact reports that verify any investigation was EVER made. The auditors office has stated that they have never conducted random statistical audits. They have stated that they merely go on someones signature that certifies that they are being truthful subject to prosecution. Well, prosecution is 1,000 fine. If a property owner is getting thousands per. year in reduced taxes the incentive is outrageous ?

Most documentation during a random sampling had defects in the application that, on surface, could have been rejected (i.e. leaving blank the amount of income earned each of the last three years.) How do you hold anyone's feet to the fire if they claim, "I never said I made money from my garden. Look at my application. You approved it" ?

Reclamation reports reveal no Indian Hill properties.

That coupled with the political affiliation of those enforcing and those receiving benefits is suspect at best.


Anonymous said...

Sorry, David, but if the previous poster is correct - then, I think the BOCC should provide the Auditor with earmarked funds to conduct a one time study/review to determine if all properties are legally obtaining their deductions. The review should be start with the biggest beneficiaries, and be comprehensive. Heck, put it out to bid as a portion of recouped funds

Free Blog CounterEnglish German Translation