DARKE COUNTY - Current Agricultural Use Values (CAUV) 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. Each step of this process is summarized below.
Projected gross income from agricultural production is computed starting with typical cropping patterns for the soil types found on a farm, applying the previous five year’s statewide average yields per acre for each crop in the pattern, then multiplying these average yields by the previous five years’ average price for each crop. The more than 3,000 different soil types found in Ohio have been collapsed into six typical cropping patterns for the purpose of calculating a farm’s projected gross income.
Then, non-land production costs are calculated to determine the farm’s projected net income. These costs are five-year averages of such inputs as seed, fertilizer, fuel oil, grease, repairs, drying fuel and electricity costs, fuel for trucking, labor charges, and machinery and equipment charges. Each of these costs is estimated from Ohio Crop Enterprise Budgets, published by The Ohio State University’s Department of Agricultural, Environmental, and Development Economics.
Since farmland is a classification of real estate, 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: The average Farm Credit Service rate on a loan amounting to 60 percent of assets, payable over 15 years; and 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 150 bushels of corn and 100 bushels of soybeans, the typical acre would have a projected yield of 75 bushels of corn and 50 bushels of soybeans.
If over the previous five years, the average price of corn is $2 per bushel and the average price of soybeans is $6 per bushel, then the projected gross income for that acre would be $150 from corn and $300 from soybeans for a total of $450. If non-land production costs have been determined to be $300 per acre, this would yield a projected net income of $150 on that acre. Finally, if, after all the calculations, the capitalization rate is determined to be 10 percent, then the agricultural use value of that acre is $150/.10=$1,500.