BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1157 (Nazarian) - Property taxation: certificated aircraft
assessment.
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|Version: May 4, 2015 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: August 17, 2015 |Consultant: Robert Ingenito |
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This bill may meet the criteria for referral to the Suspense
File.
Bill
Summary: SB 1157 would extend the lead assessor methodology to
value certificated aircraft for one additional year, through
fiscal year 2016-17.
Fiscal
Impact:
The precise revenue impact of this bill relative to
current law is unknown. Property tax revenues for the
additional year utilizing the lead assessor methodology
could higher or lower than what would have occurred absent
the bill. Approximately 50 percent of property tax revenues
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statewide accrue to schools, which generally offsets state
General Fund obligations pursuant to Proposition 98.
Consequently, any change in the school share of property
tax revenues that is attributable to the bill's impact on
assessed values would, in turn, impact General Fund
expenditures.
BOE's costs to implement the bill would be minor and
absorbable.
Background: Current law (1) provides that all property is taxable unless
explicitly exempted either by the Constitution or federal law,
(2) limits the maximum amount of any ad valorem tax on real
property at 1 percent of full cash value, and (3) precludes
reassessment unless the property is newly constructed or changes
ownership. In contrast, assessors value personal property each
year.
In 1850, the Legislature first directed county assessors to tax
property; however, assessors in different counties often applied
different tax rates and methodologies. Inconsistencies were
especially acute between counties dominated by mining and
agriculture. In 1879, the Board of Equalization (BOE) was
created to equalize rates and assessment practices among
counties. In 1910, voters amended the Constitution to direct
BOE to value property that crossed county lines, including that
owned by railways, companies selling gas and electricity, or
telephone companies.
Generally, assessors value business personal property such as
aircraft by multiplying the taxpayer's cost of acquiring it by
an inflation adjustment to estimate the cost to replace the
property at current market prices. This "reproduction cost new"
is then multiplied by a depreciation factor to provide an
estimate of the depreciated reproduction cost of the property,
which becomes the taxable value of the property for the fiscal
year.
Assessors may only value certificated aircraft with "situs" in
California on a fleet basis. Once assessors calculate value,
they must apportion it among counties based on a weighted
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average of (1) the fleet's ground and flight time (75 percent)
and (2) arrivals and departures (25 percent) measured only
during the "representative period," currently designated by BOE
as the second full in week in January. This apportioned fleet
value is then multiplied by the appropriate rate for the tax
rate area in that county.
Until 1998, state law did not prescribe a specific method for
assessors to determine the value of aircraft, resulting in years
of disagreements and litigation between assessors and airlines.
In 1998, the Legislature detailed a valuation methodology for
certificated aircraft which was presumed to equal the fair
market value of the aircraft for those years, enacting three
bills to codify a settlement agreement between several counties
and airline industry representatives. In 2003, the agreement
expired, and assessors again locally valued aircraft.
In 2006, assessors and the airlines again agreed on a new
valuation methodology (AB 964, Horton), and directed a "lead
assessor" to value each airline's fleet; this new methodology
had a sunset in 2010-11. Instead of filing property statements
with each county, airlines instead file a single consolidated
statement with a single assessor designated by the Aircraft
Advisory Subcommittee of the California Assessors' Association.
The measure established categories for various types of
aircraft, and set forth a valuation methodology for each. The
bill also directed the lead assessor to audit the airline every
four years
AB 964 also directed assessors to analyze the cost to determine
whether an economic obsolescence allowance should apply. To
determine economic obsolescence for mainline jets and regional
aircraft, the assessor calculates three factors for both the
previous calendar year and the past ten years: average net
revenue per seat mile, net load factor, and yield. The assessor
then compares each factor's previous calendar year value with
its value for the past ten years to determine the amount of
difference. The assessor then applies a weighted average of the
indicated percentage adjustments: net revenue per available seat
mile (35 percent), net load (35 percent), and yield (30
percent). The assessor must reduce the original cost by the
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percentage, but only if the final economic obsolescence exceeds
10 percent.
The methodology set forth in AB 964 was extended until 2015-16
(AB 384, Ma). With AB 384's sunset approaching, certificated
aircraft will revert to local assessment without a lead assessor
on January 1, 2016, requiring each assessor where a plane lands
to independently value aircraft.
Proposed Law:
This bill would extend, until 2016-17, the application of the
current assessment methodology for determining the fair market
value, for tax purposes, of certificated aircraft owned by
commercial air carriers, and would extend, until December 31,
2016, the procedures 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.
Related
Legislation: SB 661 (Hill) would transfer assessment of airline
personal property from local assessors to the Board of
Equalization (BOE). The bill was held under submission on this
Committee's Suspense File.
Staff
Comments: This bill would maintain the status quo for one
additional year. The revenue realized under the existing
valuation methodology would likely differ from that derived from
the methodology used prior to 1998, when valuation was left to
each individual assessor. However, the magnitude and direction
of the difference are unknown.
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