BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 384
                                                                  Page  1

          CONCURRENCE IN SENATE AMENDMENTS
          AB 384 (Ma)
          As Amended  May 5, 2010
          Majority vote
           
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          |ASSEMBLY:  |62-8 |(January 27,    |SENATE: |33-0 |(August 12,    |
          |           |     |2010)           |        |     |2010)          |
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           Original Committee Reference:    REV. & TAX.  

           SUMMARY  :  Extends the Centralized Fleet Calculation Program for  
          statewide assessment of certificated aircraft for property tax  
          purposes until fiscal year (FY) 2015-16.  

           The Senate amendments  provide that, with respect to lien dates  
          occurring on and after January 1, 2011, the value of an  
          individual aircraft assessed to the original owner may not  
          exceed its original cost and that the pre-allocated fair market  
          value of an aircraft may be rebutted by certain evidence,  
          including appraisals, invoices, and expert testimony. 

           AS PASSED BY THE ASSEMBLY  , this bill:

          1)Extended, until FY 2015-16, 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)Extended, 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)Specified that it is "rebuttably" presumed that the  
            pre-allocated fair market value of certified aircraft is the  








                                                                  AB 384
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            amount determined under the provided formula and, thus, either  
            the assessor or the taxpayer may challenge that amount before  
            an assessment appeals board.            

          4)Imposed a state-mandated local program and provided that, if  
            the Commission on State Mandates determined that this bill  
            contained costs mandated by the state, reimbursement for those  
            costs will be made as required by the statute. 

           FISCAL EFFECT  :  According to the State Board of Equalization,  
          unknown, but probably, 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. 

           COMMENTS  :  According to the author, "AB 384 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."

          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 audit and  
          the avoidance of assessment appeals is estimated at over $3.4  
          million." 

          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.  The proponents also 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. 

          Committee staff notes all of the following.  









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          1)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 FY 1998-99 to FY 2002-03 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].   

          2)The 2005 settlement agreement.  In 2005, the representatives  
            of the airline industry and a county assessors working group,  
            jointly, refined that valuation 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:  a)  acquisition cost; b)  
            price index; c) percent good factor; and, d) 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, 
            (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. 









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          3)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 statewide assessment.  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.  Unless the existing methodology for valuing  
            aircraft is extended, both the assessors and airlines will  
            have to deal with multiple tax returns reporting the same  
            information, multiple audits and multiple county assessment  
            appeals.  

          4)The presumption of value.  The assessment of certificated  
            aircraft is a difficult and complex task.  As such, the  
            potential for litigation and assessment appeals is  
            significant.  According to the author, often the best solution  
            is for the Legislature to establish a recommended valuation  
            methodology to arrive at a fair market value for a particular  
            type of property, in this case, certificated aircraft.  It is  
            presumed by both the assessor and taxpayer that the  
            methodology will result in a fair and reasonable assessment.   
            However, since appraisal is not an exact science, there may be  
            instances where one of the parties believes, and has clear  
            evidence, that the assessment resulting from the prescribed  
            methodology is wrong.  In these instances, the issue is  
            usually settled by an assessment appeals board.  This bill  
            allows taxpayers and assessors to appeal a value established  
            by following a legally prescribed methodology.  The practical  
            result of "rebuttably presumed" language is that it clearly  
            recognizes that an assessment appeals board has the discretion  








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            to set a fair market value where the facts presented clearly  
            overcome the presumption of correctness in any given  
            methodology.


           Analysis Prepared by  :    Oksana Jaffe / REV. & TAX. / (916)  
          319-2098 


                                                                FN: 0005161