Tax pros and cons for agriculture in the state budget

While there were, without a doubt, many tax positives for agriculture in H.B. 59, the two-year state budget for 2014 into 2015 also includes some potentially not-so-positive tax changes for Ohio’s farm community.

“This budget was so good to agriculture, but there are issues here that we have a little heartburn over,” said Brandon Kern, Ohio Farm Bureau Federation director of state policy. “As part of an overall package, you have to take the good with the bad.”

Along with many agricultural wins, the passed budget included provisions for the eventual elimination of the 10% and 2.5% real property tax rollbacks that could present issues for farms in the future based on new local property tax levies.
“As voters hear about new property levies that will pop up, we will be hearing more about this. It will impact what they pay in property taxes. We think it is important that it is only applied to new levies,” Kern said. “With the property tax rollback, farmers can at least have a vote or say as to whether we increase property taxes. The farmers have a chance to prepare and they do have some say at the ballot box with the property tax rollback.”

The tax rollback has been in place for more than 40 years, but is being phased out with the rollback included in H.B. 59.

“Since 1971, Ohio’s landowners have enjoyed a 10% reduction in total real property tax on non-business property (with the exception of farming, which is considered non-business use for this reduction) and a 2.5% reduction in the tax due on the value of an owner occupied home. These rollbacks were passed to lessen the opposition of Ohio voters to the adoption of a state income tax. The state has been reimbursing local governments for the lost revenue, which in 2012 totaled $1.7 billion,” wrote Larry Gearhardt, Ohio State University taxation field specialist. “This year’s biennial budget contains language which phases out these reductions. The new law says that the 10% and 2.5% rollbacks will no longer apply to new levies that are enacted after August 31, 2013. These non-qualifying levies include any additional levies, the increase portion of any renewal levy that contains an increase, and the full effective millage of replacement levies. Levies that will continue to qualify for application of the rollbacks are levies approved at or before the August 2013 election, inside millage and charter millage as they appear on the 2013 tax list, renewals of qualified levies (i.e. those without an increase), and the substitute of qualified school district emergency levies under Revised Code section 5705.199.”

In other words, if a new levy is passed, property owners will likely have to pay the full levy increase without the benefit of the rollbacks they have enjoyed in the past.

“In order to avoid confusion by the taxpayer, the nomenclature will be changed on the tax bills. The 10% rollback will now be called the ‘Non-business Credit’ and the 2.5% rollback will be referred to as the ‘Owner Occupancy Credit.’ This change is necessary because the implementation of these changes will reduce the 10% and the 2.5% rollbacks over time so that the landowner will not be receiving a full 10% and 2.5% reduction. The new terms have been taken directly from H.B. 59,” Gearhardt said.

In addition, the Homestead Exemption was also adjusted in the state budget to become a “means-tested” exemption in the state budget. Under the old law, eligible homeowners were able to shield $25,000 worth of the market value of their home (if it was their primary residence) from local property taxes, Gearhardt said. To be eligible under the old law, landowners had to:

• Be at least 65 years old or will reach age 65 during the current tax year; or

• Be certified totally and permanently disabled, regardless of age; or

• Be the surviving spouse of a qualified homeowner, and who was at least 59 years old on the date of the spouse’s death.

“Beginning with the tax year 2014, new participants in the homestead exemption program will be subject to a means test. The exemption will only be available to those otherwise eligible taxpayers with household incomes that do not exceed $30,000, as measured by Ohio adjusted gross income for the preceding year. That amount will be indexed to inflation each fall and is expected to be around $30,400 for tax year 2014. Existing homestead exemption recipients will continue to receive the credit without being subject to the income test,” Gearhardt said. “It is important to note that in order to be exempt from the means test, the homeowner must actually receive a homestead exemption credit for tax year 2013. This means that a homeowner who is not receiving the homestead exemption credit for tax year 2012 must file an application by June 2, 2014 to secure the exemption for tax year 2013. Otherwise, the homeowner will be subject to the income test for all future years.

“Homeowners who received a homestead exemption credit for tax year 2013 will never be subject to the income requirement even if they move to another Ohio residence. In other words, the grandfather status is ‘portable’ and is associated with the individual alone, rather than with a particular residence.”

Along with these changes, the state sales tax was increased from 5.5% to 5.75%, while the state income tax rate was decreased by 10%. And, in a big win for agriculture, after a proposal that would have expanded the impact of the Commercial Activity Tax (CAT) for Ohio agriculture, the final budget included an exemption that protects the critical $1 million threshold, and as a result, many farmers.

The CAT’s previous .26% rate for businesses with gross receipts over $1 million was replaced in the budget with a graduated scale. Now, there is a fee of $150 for businesses with gross receipts between $150,000 and $1 million. The fee is $800 for gross receipts between $1 million and $2 million and a $2,100 fee for $2 million to $4 million. The fee is $2,600 for businesses with gross receipts above $4 million.

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