BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1157| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1157 Author: Nazarian (D) Amended: 5/4/15 in Assembly Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 7/15/15 AYES: Hertzberg, Nguyen, Beall, Lara, Moorlach, Pavley NO VOTE RECORDED: Hernandez SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen ASSEMBLY FLOOR: 49-25, 5/22/15 - See last page for vote SUBJECT: Property taxation: certificated aircraft assessment SOURCE: Author DIGEST: This bill extends for one year the lead assessor methodology to value certificated aircraft. ANALYSIS: Existing law: 1)Provides that all property is taxable unless explicitly exempted by the Constitution or federal law. 2)Limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, and precludes reassessment unless the property is newly constructed or changes ownership; however, assessors value personal property, such as certificated aircraft, each year. AB 1157 Page 2 3)Allows assessors to value certificated aircraft with "situs" in California on a fleet basis, defined as all aircraft owned by the taxpayer by make and model. 4)Designates a lead assessor for each airline, and sets forth a methodology to calculate aircraft value, and apportion it to counties where the aircraft has situs (AB 964, Horton, Chapter 699, Statutes of 2006). a) Allows airlines to file a single consolidated statement with a single assessor designated by the Aircraft Advisory Subcommittee of the California Assessors' Association. b) Establishes categories for mainline jets, regional aircraft, production freighters, and converted freighters, and sets forth a valuation methodology for each. c) For mainline jets, states as a rebuttable presumption the aircraft value as the lesser of a historical cost basis, or 10% off (for a fleet adjustment) the wholesale price listed in the Airline Price Guide. However, in no case may this value exceed the aircraft's original cost (AB 384, Ma, Chapter 228, Statutes of 2010). d) Apportions value among counties based on a weighted average of the fleet's ground and flight time (75%), and arrivals and departures (25%) measured only during the "representative period," currently designated by the Board of Equalization (BOE) as the second full in week in January. e) Allows assessors to reduce value to account for economic obsolescence, measured by the current year's average net revenue per seat mile, net load factor, and yield compared to the previous 10 years. f) Sunsets after the 2015-16 fiscal year, after which certificated aircraft will revert to local assessment. This bill extends the current methodology for valuing certificated aircraft until the 2016-17 fiscal year. AB 1157 Page 3 Background 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 without specific guidance from the Revenue and Taxation Code. In 2006, assessors and the airlines again agreed on a new valuation methodology, which sunset in the 2010-11 fiscal year. Under the agreement, a "lead assessor" values each airline's fleet. Instead of filing property statements with each county, airlines may instead file a single consolidated statement with a single assessor designated by the Aircraft Advisory Subcommittee of the California Assessors' Association. AB 964 also directed the lead assessor to audit the airline every four years. After Governor Schwarzenegger vetoed the first bill that extended the sunset (AB 311, Ma, 2009), he signed a similar bill the next year, which extended the lead assessor model and the valuation methodology until the 2015-16 fiscal year, but differed from AB 311 by: Replacing language specifying value with a rebuttable presumption, Allowing the taxpayer to rebut the presumption with appraisals, invoices, and expert testimony, and Capping an aircraft's value at its original cost. Assessment of personal property, especially certificated aircraft, is inherently difficult. Not only are planes valuable, which leads to a larger range of disagreement, but the economic condition of the airline industry can change rapidly due to terrorist attacks, economic recessions, and mergers, all of which have occurred in recent years. The Legislature AB 1157 Page 4 initially codified an assessment methodology after years of litigation resulted in settlement agreements. AB 964's methods of assessment were supposed to establish a very detailed methodology based on either an easily knowable cost basis or a well-known price index. However, that bill also created a safety valve that would reduce values due to obsolescence whenever a weighted average of three metrics fell 10% below its average for the past 10 years. Some airlines appealed assessors' valuations over different issues, including arguing that assessors erred by using an incorrect period to calculate the 10-year average, incorrect comparison information, and applied the incorrect base year. Assessors disagreed, and assessment appeals boards subsequently upheld the assessor's valuations. However, airlines subsequently filed suit in several counties to challenge that determination, and to preserve legal standing. Under current law, taxpayers can only appeal local assessment appeals board decisions to superior court if they believe assessment are illegal; issues of pure valuation must be resolved administratively. Additionally, even if taxpayers win art one county assessment appeals board, its decisions aren't binding on other counties. However, the Constitution allows the Legislature to authorize counties to create multi-county assessment appeals boards. Related Legislation SB 661 (Hill, 2015) would have transferred assessment from assessors to BOE in response to concerns from airlines regarding the taxpayer compliance burden resulting from the lead assessor model. However, the Senate Committee on Appropriations held the bill on its suspense file. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes According to the Senate Appropriations Committee, 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 this bill. AB 1157 Page 5 SUPPORT: (Verified8/28/15) California Assessors Association California Special Districts Association California State Association of Counties California Tax Reform Association Glendale City Employees' Association Humboldt County Board of Supervisors League of California Cities Los Angeles County Assessor Jeffrey Prang Organization of SMUD Employees Sacramento County Board of Supervisors San Bernardino Employees Association San Diego County Court Employees Association San Luis Obispo County Employees Association San Mateo County Board of Supervisors Service Employees International Union United Airlines OPPOSITION: (Verified8/28/15) None received ARGUMENTS IN SUPPORT: According to the author, "The provisions outlined in current law relating to the centralized assessment of aircraft will sunset December 31, 2015. Unless extended, airlines would be required to file separate property statements and submit duplicative aircraft fleet information in every county in which they operated. In addition each county will be required to audit each carrier, if the air carrier's assessment qualifies as a mandatory audit in that county. Absent a uniform codified methodology, each county would have to calculate the total aircraft fleet value. Airlines would inevitable face uncertainty and delays on the valuation of their aircraft. A centralized process simplifies the valuation and taxation of certified aircraft, ensures statewide consistency in AB 1157 Page 6 the base value of an aircraft fleet and promotes administrative efficiency for both carriers and counties. 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 aircraft in an administratively efficient manner as these assessments translate into approximately $30 million in local revenue." ASSEMBLY FLOOR: 49-25, 5/22/15 AYES: Achadjian, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian, Obernolte, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Williams, Wood, Atkins NOES: Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Hadley, Harper, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez, Patterson, Steinorth, Wagner, Wilk NO VOTE RECORDED: Alejo, Eduardo Garcia, O'Donnell, Olsen, Waldron, Weber Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119 8/30/15 19:27:42 **** END ****