BILL ANALYSIS
AB 311
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 311 (Ma) - As Amended: April 2, 2009
VOTE ONLY
Majority vote. Fiscal committee.
SUBJECT : Property taxation: certificated aircraft assessment
SUMMARY : Extends the Centralized Fleet Calculation Program for
statewide assessment of certificated aircraft for property tax
purposes until the 2015-16 fiscal year (FY). Specifically, this
bill :
1)Extends until the 2015-16 FY the application of the current
assessment methodology for determining the fair market value
of certificated aircraft owned by commercial air carriers for
property tax purposes.
2)Extends, until December 31, 2015, the application of the
following provisions of law that otherwise are scheduled to
sunset on December 31, 2010:
a) Revenue and Taxation Code (RT&C) Section 441 that
requires a commercial air carrier to file one annual
property statement with a designated "lead" county; and,
b) RT&C Section 1153.5 that establishes the procedure for
selecting a lead county to calculate an airline's fleet
value and a coordinated multi-county audit team to perform
mandatory audits of commercial air carriers.
3)Imposes a state-mandated local program and provides that, if
the Commission on State Mandates determines that this bill
contains costs mandated by the state, reimbursement for those
costs will be made as required by the statute.
EXISTING LAW:
AB 311
Page 2
1)Provides that all property is taxable unless explicitly
exempted by the California Constitution or federal law.
Limits ad valorem taxes on real property to 1% of the full
cash value of that property as set forth in the California
Constitution.
2)Requires that real and personal property be taxed at the same
rate (Section 2 of Article XIII of the California
Constitution). However, personal property, which generally is
defined as property other than real property, is subject to
property tax of 1% of the assessed value of the taxable
personal property. Thus, the property tax applicable to
personal property is calculated based on the market value of
that property, rather than its "full cash value."
3)Requires each county to impose an ad valorem property tax rate
of 1% of the assessed value of the taxable property located in
that county, including any taxable certificated aircraft
within the county. Typically, certificated aircraft are
commercial aircraft operated by air carriers for passenger and
freight service, while general aircraft are typically
privately owned aircraft. General aircraft are assessed on an
aircraft-by-aircraft basis and an assessment is made only in a
single county where the aircraft is habitually situated.
Certificated aircraft are valued for purposes of property
taxation under a "fleet" concept, which means that the basis
of the assessed value is not the value of any single aircraft
owned by an air carrier, but the value of all aircraft of each
particular fleet type that is flown into California. Types
are grouped by make and model. Because certificated aircraft
are movable, they are often located in more than one county
during an assessment year, and assessments are made for each
county in which the aircraft in the fleet land to reflect
actual presence in California.
4)Prescribes a centralized assessment methodology for valuing
certificated aircraft for FYs 2005-06 through 2010-11. Also,
until January 1, 2011, allows a commercial air carrier to file
a single, consolidated property statement with a designated
"lead" county for all certificated aircraft that has acquired
a tax situs in California. The centralized assessment
methodology is based on a formula to be used by the "lead"
county in determining the preallocated fair market value of
each make, model, and series of mainline jets, production
freighters, converted freighters, and regional aircraft with a
AB 311
Page 3
tax situs within California for property tax purposes. The
preallocated value is the lesser of:
a) The historical cost basis, as specified; or,
b) The value referenced in the "Airline Price Guide," a
commercially-prepared value guide for aircraft, as
adjusted.
Once the "lead" county calculates the preallocated value of
the aircraft, the information is transmitted to all other
counties within which the airline has acquired a tax nexus.
Each individual county then determines its allocated portion
of the fleet based on the flight data for that particular
county. R&TC Section 1152 provides an allocation formula to
determine the frequency and the amount of time that an air
carrier's aircraft makes contact and maintains situs within a
county. An allocation ratio is the sum of two factors:
a) A ground and flight time factor; and,
b) An arrivals-and-departures factor. [Property Tax Rule
202 (c)].
The allocation ratio is applied to the full cash value of a
fleet of a particular type of aircraft operated by an air
carrier. The sum of the assessed allocated values for each
make and model used by an air carrier results in the total
assessed value of the aircraft for that air carrier for a
particular county.
The lead county is also required to transmit the property
statement related to an airport location to the situs county,
and each county is responsible for valuing personal property
and fixtures at its particular airport locations.
5)Requires assessors to audit once every four years the personal
property holdings of any property owner with an assessed value
of more than $400,000. (RT&C Section 469). Until December
31, 2010, allows an audit team comprised of staff from one to
three counties to perform a mandatory audit of a commercial
air carrier. The work performed by the audit team is deemed
to have been made on behalf of each county for which a
mandatory audit would otherwise be required under RT&C Section
469.
AB 311
Page 4
6)Defines the term "certificated aircraft" as "aircraft operated
by an air carrier or foreign air carrier engaged in air
transportation, as defined in subdivisions (3), (5), (10), and
(19) of Section 101 of Title of the "Federal Aviation Act of
1958" (P.L. 85-726; 72 Stat. 731), while there is in force a
certificate or permit issued by the Civil Aeronautics Board of
the United States, or its successor, or a certificate or
permit issued by the California Public Utilities Commission,
or its successor, authorizing such air carrier to engage in
such transportation." (RT&C Section 1150). Also defines
"converted freighter", "mainline jet", "production freighter",
and "regional aircraft".
7)Provides that the existing valuation methodology for
certificated aircraft applies for FYs 2005-06 through
2010-111, and is repealed as of December 31, 2010.
FISCAL EFFECT : The State Board of Equalization (BOE) estimates
that this bill will have no revenue impact since the existing
valuation methodology is a reasonable method for determining
fair market value of certificated aircraft and this bill simply
extends the application of this methodology.
Proposition 98 Fiscal Effect : None.
COMMENTS :
1)According to the author, "AB 311 is needed to ensure that
administrative efficiencies created by AB 964 continue for
both the airlines and assessors. AB 964 created a fair and
equitable statewide valuation of certificated aircrafts. The
Centralized Fleet Calculation Program has allowed assessors to
carry out their mandated responsibility to fairly assess
taxable property in an efficient manner."
2)The sponsor of this bill, California Assessors' Association,
argues that the existing Centralized Fleet Calculation
Program, which was established by AB 964 (Horton) in 2005, has
been a success. The program "has allowed assessors to carry
out their mandated responsibility to fairly assess all taxable
property within their jurisdiction in an efficient manner"
while streamlining the property tax process for commercial
airlines. The sponsor also states that the "total annual cost
savings statewide for assessors with centralized valuation and
AB 311
Page 5
audit and the avoidance of assessment appeals is estimated as
over $3.4 million."
3)The proponents state that the existing Centralized Fleet
Calculation Program provides an equitable and consistent
formula in valuing aircraft and allows airlines to plan
accordingly for the next five years. Additionally, the
proponents emphasize the importance of the current practice of
designating one lead county and allowing airlines to file only
one property tax return with that county.
4)The opponents argue that the "unanticipated revision of the
Airline Pricing Guide (APG) in combination with the formula
attached to the application of the APG contained in current
statute has resulted in precipitous and unexpected rises in
tax liability for Southwest Airlines." The opponents suggest
either an increase to 20% in the percent discount from the APG
of 10% or an extension of the sunset to no more than three
years to precipitate evaluation and discussion of the
methodology. The opponents state that the existing assessment
methodology was not intended to be a permanent solution to
airline valuation issues and the sunset provisions are
necessary to motivate a periodic review of that methodology.
5)Committee staff notes all of the following:
a) Background. Prior to 1999, no specific assessment
methodology procedure for valuing certificated aircraft or
for valuing the carrier's possessory interest in the
publicly owned airport existed in California. In 1998, a
group of counties and airline industry representatives
entered into a written settlement agreement to dispose of
outstanding litigation and appeals over the valuation of
possessory interest assessments in airports and the
valuation of certificated aircraft. The settlement
agreement created a new assessment methodology for valuing
aircraft that applied to 1998-99 FY to 2002-03 FY and was
codified in a three-piece legislative package [AB 1807
(Takasugi), Chapter 86, Statutes of 1998, AB 2318 (Knox),
Chapter 85, Statutes of 1998, and SB 30 (Kopp), Chapter 87,
Statutes of 1998].
b) The 2005 Settlement Agreement. In 2005, the
representatives of the airline industry and a county
assessors working group, jointly, refined that valuation
AB 311
Page 6
methodology, recognizing the need to distinguish between
different types of aircraft and to detail the specific
calculation of the variable components that were previously
lacking. For instance, with respect to calculating the
historical cost basis of the aircraft, each variable
component is specified:
i) Acquisition cost;
ii) Price index;
iii) Percent good factor; and,
iv) Economic obsolescence is all taken into account.
With respect to APG, a "blue book" value guide for
aircraft, the use of values referenced in that guide is
delineated, recognizing that airlines, generally, receive a
fleet discount that is not reflected in prices listed in
the guide. The 2005 revisions to the valuation methodology
of certificated aircraft were codified by AB 964 (Horton),
Chapter 699, Statutes of 2005, (hereafter 'AB 964').
However, AB 964 specified that the revised formula for
determining the fair market value of certificated aircraft
of a commercial air carrier only applies for FYs 2005-06 to
2010-11. AB 964 also included repeal dates for the
provisions prescribing the procedures for designating a
lead county assessor's office for each commercial air
carrier operating certificated aircraft in California,
allowing a commercial air carrier to file one property
statement with the lead county, and permitting an audit of
those carriers on a centralized basis. Under existing law,
those provisions are set to expire on January 1, 2011.
c) Certainty and Predictability of the Existing Assessment
Methodology . Prior to 1998, the valuation of aircraft had
been contentious and challenging for both county assessors
and commercial air carriers but the codified valuation
methodology has reduced those conflicts. The existing
centralized assessment of certificated aircraft provides
certainty and predictability for both assessors and
airlines. Further, the current procedure of designating a
lead county assessor's office to calculate the preallocated
fleet value ensures that airlines report the same
information to every county, resulting in a uniform
AB 311
Page 7
statewide assessment. As BOE staff points out in its
analysis of this bill, "Absent a codified methodology,
there is no guarantee that the values determined by each
individual county assessor would be the same," since
property appraisal is subjective and opinions of value
differ. Finally, the centralized assessment of aircraft
greatly reduces administrative costs for both parties. As
reported by the author, if the existing centralized
valuation methodology and the centralized audit program are
not extended, 236 additional fleet calculations and 390
additional statewide mandatory audits would be required,
resulting in an annual cost of approximately $1.3 million,
and $1.8 million, respectively.
d) Technical Amendment . BOE staff suggests the following
amendment:
On page 13, line 13, strike out "(l)" and insert "(m)"
REGISTERED SUPPORT / OPPOSITION :
Support
Alaska Airlines
American Airlines
California Assessors' Association
California State Association of Counties
United Airlines
Opposition
Southwest Airlines
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098