BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
384 (Ma)
Hearing Date: 06/28/2010 Amended: 05/05/2010
Consultant: Mark McKenzie Policy Vote: Rev&Tax 3-0
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BILL SUMMARY: AB 384 would extend the current administrative
procedures and methodology for the valuation of commercial
aircraft for property tax assessment purposes through the
2015-16 fiscal year. The bill would also provide for a
rebuttable presumption for aircraft assessed using the
prescribed methodology, as specified, and would provide that the
assessed value of any individual aircraft owned by the original
purchaser cannot exceed the purchase price.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Property tax revenue unknown revenue impact General/
--------see staff comments---------
Local
Tax administration savings Likely significant savings to
assessors and Local
(avoidance of appeals) airlines by continuing standard
assessment
methodology and centralized
administration
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STAFF COMMENTS: Absent this bill, staff presumes that the
assessment of certificated aircraft would be performed by
individual county assessors as of January 1, 2011. Staff notes
that the statewide assessed value of aircraft under the existing
valuation methodology may be different from values assigned by
county assessors if the current methodology sunsets. The Board
of Equalization (BOE) estimates that there is no revenue impact
from this bill, as the existing valuation methodology, which
this bill would extend, is a reasonable method to determine fair
market value of certificated aircraft. Extending the current
methodology would also prevent an increase in costs related to
property tax administration; absent a statewide valuation
methodology, there would likely be a significant increase in
appeals and litigation as a result of disagreements between
county assessors and airlines.
Generally, the valuation of business personal property is based
on the acquisition cost of the property, which is adjusted for
inflation and depreciation to produce the taxable fair market
value. Certificated aircraft are valued for purposes of
property taxation under a "fleet" concept, whereby the types of
aircraft of an air carrier that have been used in California are
valued as a fleet and then only a portion of the value of the
carrier's entire fleet is ultimately taxed to reflect actual
presence in the state. Existing law provides for 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 particular county. Current law also requires
commercial air carriers to file "property statements" for each
county in which they own or use personal property, detailing
property holdings, acquisition costs, and flight and ground
data. These statements are used by county assessors as the
basis for determining property tax assessments.
Page 2, AB 384 (Ma)
Prior to 1998, the assessment of certificated aircraft was
performed in each individual county in which an airline had a
presence. The lack of a statewide methodology resulted in
frequent disagreements about valuation, and in 1998 a group of
counties and airline representatives agreed to a settlement to
dispose of outstanding litigation and appeals, resulting in a
codified methodology for valuation of aircraft for a six-year
period. AB 964 (J.Horton), Chapter 699 of 2005, the result of a
subsequent working group of county and airline representatives,
revised and updated methodology for determining the value of
certificated aircraft for property tax purposes through the
2010-11 fiscal year. This methodology essentially builds upon
the statutory formulas and procedures used prior to 2006, but it
includes distinctions between the different types of passenger
and freighter aircraft and details a more comprehensive
historical cost basis that includes economic obsolescence.
Specifically, the methodology established pursuant to AB 964
bases value on the lesser of historical cost basis, as
specified, or prices listed in the "Airliner Price Guide," a
commercially-prepared value guide for aircraft, and adjusted as
specified. AB 964 also established a procedure for centralized
assessment of commercial aircraft by allowing air carriers to
file a single, consolidated property statement with a designated
"lead county" instead of filing duplicative information to all
counties in which an airline has a presence. The duties of the
lead county include accepting property statements from airlines,
determining fleet value, transmitting values to other counties
where the airline has a presence, and leading a mandatory audit
process. The current methodology is scheduled to sunset on
December 31, 2010.
AB 384 would extend the statewide valuation methodology
established by AB 964 through the 2015-16 fiscal year, and
sunset the provisions on December 31, 2016. In addition to the
extension of the existing methodology and procedures, this bill
would establish a rebuttable presumption that the values
determined using this methodology are correct, and specifies the
value of the aircraft may be rebutted by evidence including, but
not limited to, appraisals, invoices, and expert testimony. AB
384 would also provide that the assessed value of any individual
aircraft owned by the original purchaser cannot exceed the
purchase price from the manufacturer.
This bill would provide certainty and predictability in the
valuation of aircraft for both assessors and airlines. Absent a
codified methodology, there is no way to predict whether the
assessed values of aircraft determined by each individual county
assessor would be the same, higher, or lower than they would be
without this bill. The existing procedures also ensure uniform
statewide assessment by centralizing reporting and valuation
with a "lead county," which eliminates duplicative reporting and
limits discrepancies in valuation, resulting in fewer appeals.
Staff notes that the estimated assessed value of certificated
aircraft allocated to California in 2008 was approximately $8.2
billion, which resulted in about $94 million in property taxes.
Staff notes that AB 311 (Ma), which would have extended the
existing methodology through the 2014-15 fiscal year, was vetoed
by the Governor, who noted there was still one year before the
valuation provisions expire and encouraged that consensus among
all stakeholders should be reached before the current sunset
date. The addition of the rebuttable presumption and limits on
assessed value of aircraft still owned by the original purchaser
appear to have alleviated the concerns of all stakeholders.