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

           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.

          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.


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          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  

             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.


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          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  

           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  


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          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.


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          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  


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          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,  
          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

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