BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 2622|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 2622
Author: Nazarian (D), et al.
Amended: 8/2/16 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/29/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/11/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
ASSEMBLY FLOOR: 50-28, 6/1/16 - See last page for vote
SUBJECT: Property taxation: certificated aircraft assessment
SOURCE: Author
DIGEST: This bill extends the lead county assessor methodology
for valuing certificated aircraft, and enacts other changes to
improve the administration of the lead assessor system.
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
AB 2622
Page 2
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.
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)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.
5)Creates a lead assessor methodology for valuing certificated
aircraft, and sets forth a methodology to calculate aircraft
value (AB 964, Horton, Chapter 699, Statutes of 2006). The
methodology:
a) Requires owners of certificated aircraft to file one
signed property statement for the taxpayer's personal
property with a single assessor, which the owner can file
using the Standard Data Record (SDR) network.
b) Allows owners to file one schedule for its certificated
aircraft.
c) Limits audits of certificated aircraft to one, led
performed by a multi-county team.
d) Establishes categories for mainline jets, regional
aircraft, production freighters, and converted freighters,
and sets forth a valuation methodology for each.
i) 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.
ii) However, in no case may this value exceed the
aircraft's original cost, and owners of certificated
aircraft may rebut the presumption using appraisals,
AB 2622
Page 3
invoices, and expert testimony (AB 384, Ma, Chapter 228,
Statutes of 2010).
e) Provides for an economic obsolescence adjustment, where
assessors analyze the change in three variables to
determine whether larger economic forces are diminishing
the aircraft's value.
f) Requires the California Assessors' Association to
designate a lead assessor for each airline to calculate the
unallocated value of the fleet, transmit that value to
non-lead counties, receive the consolidated property
statement, and lead the audit team.
g) Sunsets after the 2016-17 fiscal year, after which
certificated aircraft will revert to local assessment.
This bill:
1)Extends the current provisions of the lead assessor
methodology to value certificated aircraft for three years,
through the 2019-2020 fiscal year.
2)Requires that the representative period designated by BOE to
consist equally of a week or group of weeks in January, and a
week or group of weeks in July.
3)Requires the Aircraft Advisory Subcommittee of the California
Assessors' Association to designate two contacts in each lead
assessor's office for each carrier to address reporting issues
and issues with the SDR network.
4)Requires the lead assessor to transmit the consolidated
property statement to each assessor in which the personal
property of the commercial air carrier has acquired situs, but
directs each non-lead assessor receiving the statement to
first send questions about its contents to the lead assessor.
If the lead assessor cannot provide an answer, the non-lead
assessor may then question the carrier.
5)Makes a technical change.
6)States that reimbursement for any state mandated costs must be
made pursuant to existing statute.
AB 2622
Page 4
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
the lead assessor designated by the Aircraft Advisory
Subcommittee of the California Assessors' Association. AB 964
(Horton, Chapter 699, Statutes of 2005) 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
AB 2622
Page 5
of which have occurred in recent years. The Legislature
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.
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 three
years utilizing the lead assessor methodology (as proposed to
be modified) could be higher or lower than what would have
occurred absent the bill. Approximately 50 percent of property
tax revenues 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 this bill will be minor and
absorbable.
SUPPORT: (Verified8/12/16)
AB 2622
Page 6
Alameda County Board of Supervisors
California Assessors' Association
California Special Districts Association
California State Association of Counties
Delta Air Lines
Los Angeles County Assessor Jeffrey Prang
Los Angeles County Board of Supervisors
Placer County Assessor Kristen Spears
San Luis Obispo County Assessor Tom Bordanaro
San Mateo County Assessor Mark Church
Stanislaus County Assessor Don H. Gaekle
OPPOSITION: (Verified8/12/16)
None received
ARGUMENTS IN SUPPORT: According to the author, "The
provisions outlined in current law relating to the centralized
assessment of aircraft will sunset on December 31, 2016.
Without centralization, 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.
Absent a uniform codified methodology, each county would have to
calculate the total aircraft fleet value, and values would
likely vary from county to county. Airlines would inevitably
face uncertainty and delays on the valuation of their aircraft.
By extending the sunset date for the assessment of certified
aircraft, AB 2622 continues to allow assessors to carry out
their mandated responsibility to fairly assess all taxable
property, within their jurisdiction, in an efficient manner.
Further, AB 2622 makes several administrative changes that
streamline and reduce workload for the airline industry. These
changes ensure that the non-lead counties contact lead counties
first with questions on filings, before contacting commercial
air carriers. Additionally, AB 2622 requires assessors, in
collaboration with the airline industry, to establish best
practices for the effective administration of the lead county
system. This bill also requires them to designate two points of
contacts that will be able to address reporting/filing issues.
AB 2622
Page 7
To better assess and reflect the carrier actual tax nexus, AB
2622 also changes the representative period methodology by
requiring it to be based equally on the carrier's flight
activity in the week or groups of weeks in January and July. It
is imperative that counties continue to assess aircraft in an
administratively efficient manner as these assessments translate
into approximately $80 million in local revenue."
ASSEMBLY FLOOR: 50-28, 6/1/16
AYES: Achadjian, Alejo, Arambula, Atkins, Bloom, Bonilla,
Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu,
Cooley, Cooper, Dababneh, Dodd, Eggman, Frazier, Cristina
Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gordon, Roger
Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low,
McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk,
Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone,
Thurmond, Ting, Weber, Williams, Wood, Rendon
NOES: Travis Allen, Baker, Bigelow, Brough, Chang, Chávez,
Dahle, Beth Gaines, Gallagher, Gatto, Gray, Grove, Harper,
Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes,
Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner,
Waldron, Wilk
NO VOTE RECORDED: Daly, Hadley
Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
8/15/16 20:22:26
**** END ****