In 2009, I witnessed a number of solar developers who were engaging rural landowners with lease option agreements for large tracts of land to develop renewable energy projects. During these discussions, a question that arose that affects many landowners in Ohio. How will a renewable energy project impact land that is enrolled in the Current Agricultural Use Value Program?
Current Agricultural Use Value (CAUV) is a differential real estate tax assessment program that allows owners of farmland the opportunity to have their parcels taxed according to the land value in agriculture, rather than full market value.
If land is converted from agricultural production to a use inconsistent with the CAUV criteria, the Ohio Constitution permits the recoupment of taxes by levying a charge on the affected land in an amount equal to the tax savings during the three tax years immediately prior the year in which the conversion occurs.
The implementation of renewable energy projects could cause farmland to lose its CAUV tax classification on a portion of the lands. However, the impacts will very depending on the type and size of the project. The construction or installation of an renewable energy facility, on a portion of land devoted exclusively to agricultural use shall not cause the remaining portion of the land to be regarded as a conversion of land use, as long as the remaining portion continues to be devoted exclusively to agricultural use (LAW Writer Ohio Laws and Rules, 2010). Furthermore, the CAUV recoupment charge under ORC Section 5713.34 shall not be assessed if the land conversion is the result of the construction or installation of an energy facility, as long as the remaining portion of the land continues to be devoted exclusively to agricultural use (LAW Writer Ohio Laws and Rules, 2010).
When structuring land acquisition deals, renewable energy projects can be proposed in the form of a long-term lease agreement or an outright purchase agreement. Regardless of the land acquisition type, it is advantageous to specify in the agreement terms which party is responsible for any agricultural tax recoupment payments that may be triggered by the change in land use.
Landowners are encouraged to discuss these issues with their county auditors to determine the exact tax liabilities that would result from the construction of renewable energy projects.