BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   THIRD READING 


          Bill No:  AB 2622
          Author:   Nazarian (D), et al.
          Amended:  8/19/16 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.


          Senate Floor Amendments of 8/19/16 delete the bill's change to  
          the representative period for allocating the value of  
          certificated aircraft.


          ANALYSIS:  

          Existing law:








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          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.

          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.  







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               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,  
                 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 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.  

          3)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.  

          4)Makes a technical change.

          5)States that reimbursement for any state mandated costs must be  







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            made pursuant to existing statute.

          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  







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          due to terrorist attacks, economic recessions, and mergers, all  
          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)







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          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  







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          contacts that will be able to address reporting/filing issues.   
          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
          8/22/16 22:42:36


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