Ohio Supreme Court Overrules Board of Tax Appeals and Ohio Tax Commissioner in CAUV Case

On Sept. 26, 2024, the Ohio Supreme Court ruled that the Ohio Tax Commissioner must reconsider how it values woodlands for purposes of Ohio's Current Agricultural Use Valuation ("CAUV"). CAUV is a valuable and widely used program for farmers and property owners, which permits a reduced property tax valuation when property is devoted to agricultural use. This decision is another example of how the Ohio Supreme Court will scrutinize determinations of the Ohio Tax Commissioner, Board of Tax Appeals, and other state agencies.

A group of landowners had appealed a decision by the Ohio Board of Tax Appeals (BTA) that upheld the Tax Commissioner's adoption of a $1,000 per-acre clearing-cost rate for woodlands for tax years 2015 to 2020. The landowners contended that this rate was too low, leading to overvaluation of their property and higher taxes.

Under Ohio law, agricultural land is valued based on its income potential rather than fair market value. The Tax Commissioner establishes Current Agricultural Use Valuations (CAUV) using factors like soil productivity and farmland market values. The clearing cost for woodlands is deducted from cropland values to determine their agricultural value.

The Tax Commissioner had used a $500 clearing-cost rate from 1983 to 2014 but increased it to $1,000 in 2015 without substantial evidence to support this decision. The landowners argued that this increase was arbitrary and unjustified, and that the tax commissioner ignored evidence proving that the rate should be higher.

The court ruled that the Tax Commissioner abused her discretion by adopting the $1,000 rate. It was deemed arbitrary and not based on reliable evidence or sound reasoning. According to the court, the decision to double the previous rate lacked a concrete basis and could lead to similarly arbitrary adjustments in the future. The court reversed the BTA's decision and remanded the case, instructing the Tax Commissioner to establish a new clearing-cost rate based on proper evidence and standards.

This is one of several recent tax decisions in which the Ohio Supreme Court overruled a decision of the Board of Tax Appeals and Ohio Tax Commissioner. See e.g., Stingray Pressure Pumping, L.L.C. v. Harris, 172 Ohio St.3d 130, 2023-Ohio-2598; NASCAR Holdings, Inc. v. McClain, 170 Ohio St.3d 433, 2022-Ohio-4131. This appears to be part of a national and potentially on-going trend of courts to scrutinize agency determinations in response to the United States Supreme Court decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024). In Loper Bright, the United States Supreme Court overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984) and the so-called "Chevron deference" standard. This trend could create opportunities for other taxpayers to challenge agency determinations and rules that were created without the appropriate authority and rationale.

If you have any questions regarding the Adams decision or other Ohio tax matters, please contact the authors of this article or any other member of the Taft State and Local Tax team.