Amended in Assembly May 4, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 1157

Introduced by Assembly Member Nazarian

February 27, 2015

An act to amend Sections 401.17, 441, and 1153.5 of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 1157, as amended, Nazarian. Property taxation: certificated aircraft assessment.

Existing property tax law requires the personal property of an air carrier to be taxed at its fair market value, and the California Constitution requires property subject to ad valorem property taxation to be assessed in the county in which it is situated. Existing law, for the 2005-06 fiscal year to the 2015-16 fiscal year, inclusive, specifies a formula to determine the fair market value of certificated aircraft of a commercial air carrier, and rebuttably presumes that the amount determined pursuant to this formula is the fair market value of the certificated aircraft. Existing law further requires, until December 31, 2015, the Aircraft Advisory Subcommittee of the California Assessors’ Association to designate, after soliciting input from commercial air carriers operating in the state, a lead county assessor’s office for each commercial air carrier operating certificated aircraft in this state in an assessment year, and requires the lead county assessor to calculate the value of the air carrier’s personal property and to transmit these calculations to other county assessors, but specifies that each county assessor is responsible for assessing and enrolling the taxable value of the property in his or her county, as provided. Existing law also requires, until December 31, 2015, the lead county assessor’s office to lead a team to audit the books and records of commercial air carriers and authorizes these air carriers to file a property statement solely with the lead county assessor’s office, as provided.

This bill would extend the 2015-16 fiscal year termination date to the begin delete 2021-22 end delete begin insert 2016-17 end insert fiscal year and the December 31, 2015, inoperative or repeal date to December 31, begin delete 2021, end delete begin insert 2016, end insert for the above-described provisions relating to the determination of the fair market value and taxation of certificated aircraft.

By extending the application of the aforementioned valuation process for certificated aircraft beyond the 2015-16 fiscal year, thereby imposing new duties upon a lead county assessor’s office, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 401.17 of the Revenue and Taxation
Code is amended to read:

401.17.  

(a) For the 2005-06 fiscal year to the begin delete 2021-22 end delete
begin insert 2016-17 end insert fiscal year, inclusive, it shall be rebuttably presumed that
the preallocated fair market value of each make, model, and series
of mainline jets, production freighters, and regional aircraft that
has attained situs within this state is the lesser of the sum total of
the amounts determined under paragraph (1) or the sum total of
the amounts determined under paragraph (2). The value of an
individual aircraft assessed to the original owner of that aircraft
shall not exceed its original cost from the manufacturer. The
preallocated fair market value of an aircraft may be rebutted by
evidence including, but not limited to, appraisals, invoices, and
expert testimony.

(1) (A) The original cost for the aircraft, which shall be
determined as follows and adjusted, as applicable, under
subparagraphs (B), (C), and (D):

(i) For owned and leased aircraft, the taxpayer’s or lessor’s
acquisition cost for that individual aircraft reported in accordance
with generally accepted accounting principles, and to the extent
not included in the acquisition cost, transportation costs and
capitalized interest and the cost of improvements made before a
transaction described in clause (ii). If the original cost for leased
aircraft cannot be determined from information reasonably
available to the taxpayer, original cost may be determined by
reference to the “average new prices” column of the Airliner Price
Guide for that model, series, and year of manufacture of aircraft.
If information is not available in the “average new prices” column
for that model, series, and year, the original cost may be determined
using the best indicator of original cost plus all conversion costs
and improvement costs incurred for that aircraft.

(ii) For sale/leaseback or assignment of purchase rights
transaction aircraft, the average of the taxpayer’s cost established
pursuant to clause (i) and the cost established in a sale/leaseback
or assignment of purchase rights transaction for individual aircraft
that transfers the benefits and burdens of ownership to the lessor
for United States federal income tax purposes. In no event shall
the original cost for sale/leaseback aircraft be less than the
taxpayer’s acquisition cost.

(iii) In the event of a merger, bankruptcy, or change in
accounting methods by the reporting airline, there shall be a
rebuttable presumption that the cost of the individual aircraft and
the acquisition date reported by the acquired company, if available,
or the cost reported prior to the change in accounting method, are
the original cost and the applicable acquisition date.

(B) (i) For mainline jets and production freighters, the original
cost described in subparagraph (A), plus the cost of any
improvements not otherwise included in the original cost, shall be
adjusted from the date of the acquisition of the aircraft to the lien
date using the monthly United States Department of Labor
Producer Price Index for aircraft and a 20-year straight-line
percent-good table starting from the delivery date of the aircraft
to the current owner or, in the case of a sale/leaseback or
assignment of purchase rights transaction, as described in this
section, the current operator with a minimum combined factor of
25 percent.

(ii) For regional aircraft, the original cost described in
subparagraph (A), plus the cost of any improvements not otherwise
included in the original cost, shall be adjusted from the date of the
acquisition of the aircraft to the lien date using the monthly United
States Department of Labor Producer Price Index for aircraft and
a 16-year straight-line percent-good table starting from the delivery
date of the aircraft to the current owner or, in the case of a
sale/leaseback or assignment of purchase rights transaction, as
described in this section, the current operator with a minimum
combined factor of 25 percent.

(iii) If original cost is determined by reference to the Airliner
Price Guide “average new prices” column, the adjustments required
by this paragraph shall be made by setting the acquisition date of
the aircraft to be the date of the aircraft’s manufacture.

(C) (i) For mainline jets and regional aircraft, the assessor shall
analyze the adjusted original cost derived pursuant to subparagraph
(B), for application of an economic obsolescence allowance which
shall be determined as follows:

(I) For the applicable year, the assessor shall calculate the
average annual net revenue per available seat mile, the net load
factor, and the yield utilizing the Airline Quarterly Financial
Review published by the United States Department of
Transportation, and referring to the section descriptive of the
passenger airline industry, entitled “System Operations, System
Pax. Majors” for the calendar year ending December 31
immediately preceding the applicable assessment date.

(II) For a 10-year benchmark, the assessor shall calculate as of
December 31 for each of the 10 calendar years preceding the
applicable year, the average annual net revenue per available seat
mile, the net load factor, and the yield utilizing the Airline
Quarterly Financial Review published by the United States
Department of Transportation, and referring to the section
descriptive of the passenger airline industry, entitled “System
Operations, System Pax. Majors” for the calendar year ending
December 31 immediately preceding the applicable assessment
date.

(ii) (I) The assessor shall compare each factor calculated under
subclause (I) of clause (i) with the corresponding factor calculated
under subclause (II) of clause (i) to derive the percentage that each
of the factors calculated under subclause (I) of clause (i) deviated
from the 10-year benchmark calculated under subclause (II) of
clause (i). The assessor shall then calculate a weighted average of
the indicated percentage adjustments, weighted as follows:

(aa) Net revenue per available seat mile shall be weighted 35
percent.

(ab) Net load factor shall be weighted 35 percent.

(ac) Yield shall be weighted 30 percent.

(II) The assessor shall reduce the adjusted original costs derived
under subparagraph (B) by the percentage adjustment calculated
in subclause (I), but only if the final economic obsolescence
determined under that subclause exceeds 10 percent, otherwise no
economic obsolescence allowance shall be provided.

(D) (i) For production freighters, the assessor shall analyze the
adjusted original cost derived under subparagraph (B), for
application of an economic obsolescence allowance, as follows:

(I) For the applicable year, the assessor shall calculate the
industry average of net revenue per available ton mile and the ton
load factor based upon the Airline Quarterly Financial Review
published by the United States Department of Transportation, and
referring to the section descriptive of the cargo airline industry,
entitled “System Operations, System Cargo Majors” for the
calendar year ending December 31 preceding the relevant
assessment date.

(II) For a 10-year benchmark, the assessor shall calculate as of
December 31 for each of the 10 calendar years preceding the
applicable year, the net revenue per available ton mile and the ton
load factor utilizing the Airline Quarterly Financial Review
published by the United States Department of Transportation and
referring to the section descriptive of the cargo airline industry,
entitled “System Operations, System Cargo Majors” as of
December 31 for each of the 10 calendar years preceding the
calendar year utilized for the subject year, for the calendar year
ending December 31 immediately preceding the applicable
assessment date.

(ii) (I) The assessor shall compare each factor calculated under
subclause (I) of clause (i) with the corresponding factor calculated
under subclause (II) of clause (i) to derive the percentage that each
of the factors calculated under subclause (I) of clause (i) deviated
from the 10-year benchmark calculated under subclause (II) of
clause (i). The assessor shall then calculate a weighted average of
the indicated percentage adjustments so that the net revenue per
available ton mile is weighted 50 percent and the ton load factor
is weighted 50 percent.

(II) The assessor shall reduce the adjusted original costs derived
under subparagraph (B) by the percentage adjustment calculated
in subclause (I), but only if the final economic obsolescence
determined under that subclause exceeds 10 percent, otherwise no
economic obsolescence allowance shall be provided.

(2) (A) Except as otherwise provided in subparagraph (B), for
each individual mainline jet, production freighter, or regional
aircraft, the assessor shall identify the value referenced in the “Used
Price of Avg. Acft. Wholesale” column of the Winter edition of
the Airliner Price Guide by make, model, series, and year of
manufacture, and deduct 10 percent from that value for a fleet
discount.

(B) For each individual mainline jet, production freighter, or
regional aircraft that is less than two years old and for which the
Airliner Price Guide does not list used wholesale values, the
original cost determined under paragraph (1) of subparagraph (A)
shall be decreased by the lesser of 5 percent or one-half of the
percentage decrease between original cost and 90 percent of the
value listed in the “Used Price of Avg. Acft. Wholesale” column
of the Winter edition of the Airliner Price Guide for a two-year-old
aircraft of that same make, model, and series.

(b) For the 2005-06 fiscal year to the begin delete 2021-22 end delete begin insert 2016-17 end insert fiscal
year, inclusive, it shall be rebuttably presumed that the preallocated
fair market value for each make, model, and series of converted
freighters that has attained situs within this state is the amount that
is determined as follows:

(1) (A) The assessor shall begin his or her appraisal of a
converted freighter as of the relevant lien date by identifying the
aircraft’s original cost as a passenger aircraft prior to conversion.
The aircraft’s original cost as a converted freighter shall be the
lesser of:

(i) Its trended original cost as a passenger aircraft prior to
conversion, less a downward adjustment of 10 percent to reflect
tear-outs.

(ii) Its value described in the Winter edition of the Airliner Price
Guide in the “Used Price of Avg. Acft. Wholesale” column in
passenger configuration, less a downward adjustment of 10 percent
to reflect tear-outs.

(B) The amount determined under subparagraph (A) shall be
adjusted according to the following:

(i) If, on the relevant lien date, the frame of the aircraft is 15
years old or more, 50 percent of the cost to convert the aircraft to
a freighter shall be added to the value determined under
subparagraph (A).

(ii) If, on the relevant lien date, the frame of the aircraft is less
than 15 years old, 75 percent of the cost to convert the aircraft to
a freighter shall be added to the value determined under
subparagraph (A).

(iii) In addition, all other improvements, including capitalized
interest, to the aircraft that are not otherwise included in the
aircraft’s original and conversion costs shall be added at full value.

(2) The amount determined under paragraph (1) shall be adjusted
from the date of the conversion of the aircraft to the lien date using
the monthly United States Department of Labor Producer Price
Index for aircraft and a 16-year straight-line percent-good table,
however, the percent-good applied to the aircraft shall in no event
be less than 15 percent.

(3) If the Airliner Price Guide “Used Price of Avg. Acft.
Wholesale” is utilized under paragraph (1), only the improvements
and adjusted conversion costs pertaining to the converted freighter
shall be adjusted from the date of the conversion of the aircraft to
the relevant lien date using the monthly United States Department
of Labor Producer Price Index for aircraft and a 16-year
straight-line percent-good table. In no event, however, shall the
percent-good applied to the improvements and adjusted conversion
costs be less than 15 percent.

(4) (A) Except as otherwise provided in subparagraph (B), the
assessor shall reduce the adjusted original cost, plus improvements,
and adjusted conversion costs, derived under paragraphs (1) to (3),
inclusive, by the obsolescence percentage adjustment calculated
for production freighters under subparagraph (D) of paragraph (1)
of subdivision (a).

(B) If the Airliner Price Guide “Used Price of Avg. Acft.
Wholesale” is utilized under paragraph (1), only the improvements
and adjusted conversion costs pertaining to the converted freighter
shall be reduced by the obsolescence percentage adjustment
described in subparagraph (A).

(c) For purposes of this section, if the Airliner Price Guide
ceases to be published or the format significantly changes, a guide
or adjustment agreed to by commercial air carriers and the counties
in which certificated aircraft have situs shall be substituted. If these
parties do not agree on a guide or adjustment, the State Board of
Equalization shall determine the guide or adjustment.

(d) The taxpayer shall, to the extent that information is
reasonably available to the taxpayer, furnish the county assessor
with an annual property statement that includes the aircraft original
costs as defined in subparagraph (A) of paragraph (1) of
subdivision (a). If an air carrier that has this information reasonably
available to it fails to report original cost and improvements, as
required by Sections 441 and 442, an assessor may in that case
make an appropriate assessment pursuant to Section 501.

(e) For purposes of this section, all of the following apply:

(1) “Converted freighter” means a certificated aircraft, as defined
in Section 1150, that, following its original manufacture, was used
for passenger transportation, but was later converted to be used
primarily for cargo transportation purposes.

(2) “Mainline jet” means a certificated aircraft, as defined in
Section 1150, that is either of the following:

(A) Manufactured by Boeing, Airbus, or McDonnell Douglas.

(B) Capable of being configured with approximately 100 seats
or more.

(3) “Production Freighter” means a certificated aircraft, as
defined in Section 1150, that immediately following its
manufacture is deployed primarily for cargo transportation
purposes.

(4) “Regional aircraft” means a certificated aircraft, as defined
in Section 1150, that is either of the following:

(A) Manufactured by ATR (Avions De Transport Regional),
Beech, British Aerospace Jetstream, Canadair Regional Jet, Cessna,
DeHaviland, Embraer, Fairchild, or Saab.

(B) Generally configured with fewer than 100 seats.

(5) “Improvements” means the cost of any modifications or
capital additions that materially add to the value of or substantially
prolong the useful life of the aircraft, or make it adaptable to a
different use. “Improvements” include modification costs incurred
during a heavy maintenance visit to the extent that they materially
add to the value of or substantially prolong the useful life of the
aircraft. “Improvements” do not include repair and maintenance
costs incurred for the purpose of keeping the aircraft in an
ordinarily efficient operating condition.

(6) “Net revenue per available seat mile” means operating
revenue per available seat mile less cost per available seat mile as
determined by the United States Department of Transportation.

(7) “Net load factor” means actual passenger load factor less
break-even passenger load factor, as determined by the United
States Department of Transportation.

(8) “Net revenue per available ton mile” means operating
revenue per ton mile less cost per available ton mile as determined
by the United States Department of Transportation.

(9) “Yield” means average revenue per revenue passenger mile
as determined by the United States Department of Transportation.

(10) “Ton Load Factor” means that percentage of effective use
of cargo capacity as determined by the United States Department
of Transportation.

(f) The amendments made by the act adding this subdivision
shall apply with respect to lien dates occurring on and after January
1, 2011.

SEC. 2.  

Section 441 of the Revenue and Taxation Code is
amended to read:

441.  

(a) Each person owning taxable personal property, other
than a manufactured home subject to Part 13 (commencing with
Section 5800), having an aggregate cost of one hundred thousand
dollars ($100,000) or more for any assessment year shall file a
signed property statement with the assessor. Every person owning
personal property that does not require the filing of a property
statement or real property shall, upon request of the assessor, file
a signed property statement. Failure of the assessor to request or
secure the property statement does not render any assessment
invalid.

(b) The property statement shall be declared to be true under
the penalty of perjury and filed annually with the assessor between
the lien date and 5 p.m. on April 1. The penalty provided by Section
463 applies for property statements not filed by May 7. If May 7
falls on a Saturday, Sunday, or legal holiday, a property statement
that is mailed and postmarked on the next business day shall be
deemed to have been filed between the lien date and 5 p.m. on
May 7. If, on the dates specified in this subdivision, the county’s
offices are closed for the entire day, that day is considered a legal
holiday for purposes of this section.

(c) The property statement may be filed with the assessor
through the United States mail, properly addressed with postage
prepaid. For purposes of determining the date upon which the
property statement is deemed filed with the assessor, the date of
postmark as affixed by the United States Postal Service, or the
date certified by a bona fide private courier service on the envelope
containing the application, shall control. This subdivision shall be
applicable to every taxing agency, including, but not limited to, a
chartered city and county, or chartered city.

(d) (1) At any time, as required by the assessor for assessment
purposes, every person shall make available for examination
information or records regarding his or her property or any other
personal property located on premises he or she owns or controls.
In this connection details of property acquisition transactions,
construction and development costs, rental income, and other data
relevant to the determination of an estimate of value are to be
considered as information essential to the proper discharge of the
assessor’s duties.

(2) (A) This subdivision shall also apply to an owner-builder
or an owner-developer of new construction that is sold to a third
party, is constructed on behalf of a third party, or is constructed
for the purpose of selling that property to a third party.

(B) The owner-builder or owner-developer of new construction
described in subparagraph (A), shall, within 45 days of receipt of
a written request by the assessor for information or records, provide
the assessor with all information and records regarding that
property. The information and records provided to the assessor
shall include the total consideration provided either by the
purchaser or on behalf of the purchaser that was paid or provided
either, as part of or outside of the purchase agreement, including,
but not limited to, consideration paid or provided for the purchase
or acquisition of upgrades, additions, or for any other additional
or supplemental work performed or arranged for by the
owner-builder or owner-developer on behalf of the purchaser.

(e) In the case of a corporate owner of property, the property
statement shall be signed either by an officer of the corporation or
an employee or agent who has been designated in writing by the
board of directors to sign the statements on behalf of the
corporation.

(f) In the case of property owned by a bank or other financial
institution and leased to an entity other than a bank or other
financial institution, the property statement shall be submitted by
the owner bank or other financial institution.

(g)  The assessor may refuse to accept any property statement
he or she determines to be in error.

(h) If a taxpayer fails to provide information to the assessor
pursuant to subdivision (d) and introduces any requested materials
or information at any assessment appeals board hearing, the
assessor may request and shall be granted a continuance for a
reasonable period of time. The continuance shall extend the
two-year period specified in subdivision (c) of Section 1604 for a
period of time equal to the period of the continuance.

(i) Notwithstanding any other provision of law, every person
required to file a property statement pursuant to this section shall
be permitted to amend that property statement until May 31 of the
year in which the property statement is due, for errors and
omissions not the result of willful intent to erroneously report. The
penalty authorized by Section 463 does not apply to an amended
statement received prior to May 31, provided the original statement
is not subject to penalty pursuant to subdivision (b). The amended
property statement shall otherwise conform to the requirements
of a property statement as provided in this article.

(j) This subdivision shall apply to the oil, gas, and mineral
extraction industry only. Any information that is necessary to file
a true, correct, and complete statement shall be made available by
the assessor, upon request, to the taxpayer by mail or at the office
of the assessor by February 28. For each business day beyond
February 28 that the information is unavailable, the filing deadline
in subdivision (b) shall be extended in that county by one business
day, for those statements affected by the delay. In no case shall
the filing deadline be extended beyond June 1 or the first business
day thereafter.

(k) The assessor may accept the filing of a property statement
by the use of electronic media. In lieu of the signature required by
subdivision (a) and the declaration under penalty of perjury
required by subdivision (b), property statements filed using
electronic media shall be authenticated pursuant to methods
specified by the assessor and approved by the board. Electronic
media includes, but is not limited to, computer modem, magnetic
media, optical disk, and facsimile machine.

(l) (1) After receiving the notice required by Section 1162, the
manager in control of a fleet of fractionally owned aircraft shall
file with the lead county assessor’s office one signed property
statement for all of its aircraft that have acquired situs in the state,
as described in Section 1161.

(2) Flight data required to compute fractionally owned aircraft
allocation under Section 1161 shall be segregated by airport.

(m) (1) After receiving the notice required by paragraph (5) of
subdivision (b) of Section 1153.5, a commercial air carrier whose
certificated aircraft is subject to Article 6 (commencing with
Section 1150) of Chapter 5 shall file with the lead county assessor’s
office designated under Section 1153.5 one signed property
statement for its personal property at all airport locations and
fixtures at all airport locations.

(2) Each commercial air carrier may file one schedule for all of
its certificated aircraft that have acquired situs in this state under
Section 1151.

(3) Flight data required to compute certificated aircraft allocation
under Section 1152 and subdivision (g) of Section 202 of Title 18
of the California Code of Regulations shall be segregated by airport
location.

(4) Beginning with the 2006 assessment year, a commercial air
carrier may file a statement described in this subdivision
electronically by means of the California Assessor’s Standard Data
Record (SDR) network. If the SDR is not equipped to accept
electronic filings for the 2006 assessment year, an air carrier may
file a printed version of its property statement for that year with
its lead county assessor’s office.

(5) This subdivision shall remain operative only until December
31, begin delete 2021. end delete begin insert 2016. end insert

SEC. 3.  

Section 1153.5 of the Revenue and Taxation Code is
amended to read:

1153.5.  

(a) The Aircraft Advisory Subcommittee of the
California Assessors’ Association shall, after soliciting input from
commercial air carriers operating in the state, do both of the
following:

(1) On or before March 1, 2006, and on or before each March
1 thereafter, designate a lead county assessor’s office for each
commercial air carrier operating certificated aircraft in this state
in that assessment year.

(2) Every third year thereafter, redesignate a lead county
assessor’s office for each of these air carriers, unless an air carrier
and its existing lead county assessor’s office concur to waive this
redesignation.

(b) The lead county assessor’s office described in subdivision
(a) shall do all of the following:

(1) Calculate, pursuant to Section 401.17, an unallocated value
of the certificated aircraft of each commercial air carrier to which
he or she is designated.

(2) Electronically transmit to the assessor of each county in
which the property described in paragraph (1) has situs for the
assessment year the values determined by the lead county
assessor’s office under paragraph (1).

(3) Receive the property statement, as described in subdivision
(l) of Section 441, of each commercial air carrier to which he or
she is designated.

(4) Lead the audit team described in subdivision (d) when that
team is conducting an audit of a commercial air carrier to which
he or she is designated.

(5) Notify, in writing, each commercial air carrier for which he
or she has been designated of this designation on or before the first
March 15 that follows that designation.

(c) (1) Notwithstanding subdivision (b), the county assessor of
each county in which the personal property of a commercial air
carrier has situs for an assessment year is solely responsible for
assessing that property, applying the allocation formula set forth
in Section 1152, and enrolling the value of the property in that
county, but, in determining the unallocated fleet value for each
make, model, and series of certificated aircraft of a commercial
air carrier, the assessor may consult with the lead county assessor’s
office designated for that commercial air carrier.

(2) The lead county assessor’s office is subject to Section 322
of Title 18 of the California Code of Regulations and Sections
408, 451, and 1606 to the same extent as the assessor described in
paragraph (1).

(d) Notwithstanding Section 469, an audit of a commercial air
carrier shall be conducted once every four years on a centralized
basis by an audit team of auditor-appraisers from at least one, but
not more than three, counties, as determined by the Aircraft
Advisory Subcommittee of the California Assessors’ Association.
An audit, so conducted, shall encompass all of the California
Personal Property and fixtures of the air carrier and is deemed to
be made on behalf of each county for which an audit would
otherwise be required under Section 469.

(e) This section shall remain in effect only until December 31, begin delete 2021, end delete begin insert 2016, end insert and as of that date is repealed.

SEC. 4.  

If the Commission on State Mandates determines that
this act contains costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division
4 of Title 2 of the Government Code.