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 ****