BILL ANALYSIS Ó
AB 1157
Page A
ASSEMBLY THIRD READING
AB
1157 (Nazarian)
As Amended May 4, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+--------------------+----------------------|
|Revenue & |6-3 |Ting, Dababneh, |Brough, Patterson, |
|Taxation | |Gipson, Roger |Wagner |
| | |Hernández, Mullin, | |
| | |Quirk | |
| | | | |
|----------------+------+--------------------+----------------------|
|Appropriations |12-5 |Gomez, Bloom, |Bigelow, Chang, |
| | |Bonta, Calderon, |Gallagher, Jones, |
| | |Daly, Eggman, |Wagner |
| | |Eduardo Garcia, | |
| | |Holden, Quirk, | |
| | |Rendon, Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Extends the Centralized Fleet Calculation Program for
statewide assessment of certificated aircraft for property tax
purposes until Fiscal Year (FY) 2016 to 2017.
AB 1157
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Specifically, this bill:
1)Extends, until FY 2016 to 2017, the application of the current
assessment methodology for determining the fair market value
(FMV) of certificated aircraft owned by commercial air carriers
for property tax purposes and the rebuttable presumption that
the pre-allocated FMV of certified aircraft, as calculated, is
correct.
2)Extends, until December 31, 2016, the application of the
following provisions of law that otherwise are scheduled to
sunset on December 31, 2015:
a) Revenue and Taxation Code (RT&C) Section 441(l) that
requires a commercial air carrier to file one annual property
statement with a designated "lead" county, as provided; 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
State Mandates Commission determines that this bill contains
costs mandated by the state, reimbursement for those costs will
be made as required by the statute.
EXISTING LAW:
1)Provides that all property is taxable unless explicitly exempted
by the California Constitution or federal law. Limits ad
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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 (California Constitution Article XIII, Section 2).
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. Certificated aircraft is subject to property
taxation when in revenue service in California. 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. Only an
allocated portion of the entire fleet's value ultimately taxed
to reflect actual presence in California's counties. 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
during the year.
4)Prescribes a centralized assessment methodology for valuing
certificated aircraft for FYs 2005 to 2006 through 2015 to 2016.
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This methodology 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 FMV of each make, model, and series
of mainline jets, production freighters, converted freighters,
and regional aircraft with a tax situs within California for
property tax purposes. The preallocated value is the lesser of:
a) A historical cost less depreciation basis with no
individual aircraft value exceeding the original price paid;
or,
b) The value referenced in the winter edition of the "Airline
Price Guide," a commercially-prepared value guide for
aircraft, less 10%.
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, which accounts for 75% of
the ratio; and,
b) An arrivals-and-departures factor, which accounts for 25%
of the ratio. [Property Tax Rule 202 (c)].
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The sum of these factors yields the allocation ration, which 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.
6)Specifies 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 FMV of an aircraft may be rebutted by
certain evidence, including appraisals, invoices, and expert
testimony.
7)Requires the "lead" county to transmit the property statement
related to an airport location to the situs county, and provides
that each county is responsible for valuing personal property
and fixtures at its particular airport locations.
8)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).
9)Allows an audit team comprised of staff from one to three
counties, as determined by the Aircraft Advisory Subcommittee of
the California Assessors' Association, to perform a mandatory
audit of a commercial air carrier once every four years on a
centralized basis. 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. (R&TC Section 1153.5).
1)Provides that the existing valuation methodology for
certificated aircraft applies for FYs 2005 to 2006 through 2015
to 2016, and is repealed as of December 31, 2015.
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FISCAL EFFECT: According to the Assembly Appropriations
Committee, unknown; absent a codified methodology, there can be no
assurance that the values determined by individual county
assessors would be the same, higher, or lower than they are under
the current methodology. Aggregate property tax revenue from
commercial aircraft in 2014 was approximately $80 million.
COMMENTS:
1)Author's Statement. The author has provided the following
statement in support of this bill:
AB 1157 extends for five years the sunset date for the
centralized determination of the fair market value and
taxation of certificated aircraft. By extending the
sunset date, this bill ensures aircraft continues to be
valued uniformly and taxed efficiently throughout the
state.
In extending the sunset date for the assessment of
certified aircraft, AB 1157 continues to eliminate the
need for multiple tax returns reporting the same
information, and allows assessors to carry out their
mandated responsibility to fairly assess all taxable
property, within their jurisdiction, in an efficient
manner.
It is imperative that counties continue to assess
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aircraft in an administratively efficient manner as
these assessments translate into approximately $30
million in local revenue.
2)Background. Prior to 1999, no specific assessment methodology
procedure for valuing certificated aircraft or 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 to 1999 to FY 2002 to 2003 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].
3)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 and taken into account: a)
acquisition cost, b) price index, c) percent good factor, and d)
economic obsolescence. With respect to Aircraft Performance
Group, 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. However, AB
964 specified that the revised formula for determining the FMV
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of certificated aircraft of a commercial air carrier applied
only for FYs 2005 to 2006 through 2010to 2011. 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.
In 2010, a bill was introduced to extend the valuation
methodology and centralized assessment provisions temporarily to
the FY 2015-16. [AB 384 (Ma), Chapter 228, Statutes of 2010.]
AB 384 also revised the valuation provisions to create a
rebuttable presumption of correctness for the FMV of
certificated aircraft determined under the assessment
methodology. AB 384 specified that the FMV may be rebutted by
evidence including appraisals, invoices, and expert testimony.
Finally, AB 384 provided that the value of an individual
aircraft assessed to the original owner may not exceed its
original cost from the manufacturer.
4)Centralized Assessment System. Under existing law, which this
bill proposes to extend, a "lead" county is designated by the
Aircraft Advisory Subcommittee of the California Assessors'
Association for each commercial air carrier operating
certificated aircraft in California. The "lead" county is
required to calculate an unallocated fleet value of the
carrier's certificated aircraft for each make, model, and
series, as provided. Once the fleet value is calculated, it is
transmitted to other counties, which in turn will determine
their allocated portions of the fleet value based on the flight
data for each county. The allocation process limits each
county's assessment to reflect the aircraft's physical presence
in that county.
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Existing law also allows commercial air carriers operating in
multiple California airports to file a single consolidated
property statement with a "lead" county. In turn, the "lead"
county must transmit return information related to non-aircraft
personal property and fixtures to other counties where the air
carrier operates. The audit procedures are also centralized:
an audit team directed by the "lead" county will audit the air
carrier once every four years on a centralized basis.
5)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.<1> 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. 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. Furthermore, assessors would be able
----------------------------
<1>
Recently, several air carriers have commenced legal action
challenging the calculations of economic obsolescence under R&TC
Sections 401.17(a)(1)(C) and (D). This bill, however, does not
propose to modify the economic obsolescence provisions.
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to use any valid method to determine FMV, such as, for example,
cost, income, comparable sales, and published market value
guides.
6)The Rebuttable 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. It is presumed by both the assessor and taxpayer
that the existing 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.
Consistent with the existing law, this bill would allow
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
to set a FMV where the facts presented clearly overcome the
presumption of correctness in any given methodology. According
to the author, the best solution is for the Legislature to
extend the existing valuation methodology to arrive at a FMV for
certificated aircraft, including the rebuttable presumption of
correctness of the value. If the existing centralized
assessment provisions are not extended, then the burden of proof
regarding the correctness of the assessment will shift to the
air carrier challenging the assessed value.
7)Related Legislation. SB 661 (Hill) of the current legislative
session, would transfer assessment jurisdiction for commercial
air carrier personal property, including certificated aircraft,
to the Board of Equalization. SB 661 is currently pending in
the Senate Appropriations Committee.
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Analysis Prepared by:
Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN:
0000433