BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 357 (Hall) - Private railroad car tax
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|Version: February 24, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: April 27, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 357 would (1) change the tax calculation
methodology on private railroad cars (PRCs) as specified, and
(2) modify the depreciation schedules used to assess the
valuation of individual PRCs.
Fiscal Impact:
The Board of Equalization (BOE) indicates that this
measure would result in an annual General Fund revenue loss
of $507,000 million.
The bill would eliminate BOE's need to purchase
replacement software to maintain the current-law
calculation methodology. Thus, the bill would result in an
avoidance of this one-time cost of about $500,000.
Additionally, the bill would eliminate BOE's need to
continue the current $13,000 annual railroad car
registration subscription to verify the days that rail cars
are present in the State.
SB 357 (Hall) Page 1 of
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Background: The Private Railroad Car Tax program values and
assesses railroad cars not owned by railroad companies, but
operated on railway lines within California. This is the only
property tax administered and collected by the State.
Specifically, current law imposes a property tax on PRCs
operating on the State's railroads, and dictates specifies the
methodology to value them. BOE determines value based on
acquisition cost less depreciation for each railroad car class
in the owner's fleet; current law permits additional deductions
in the form of depreciation for cars purchased used and
improvements to existing cars. This tax base is subsequently
multiplied by the tax rate (the average statewide property tax
rate), determined by BOE's Research and Statistics Section.
Because PRCs are involved in interstate travel, the value
calculation must be apportioned among the states. PRCs are taxed
on a proportional basis consistent with actual presence in
California. Current law requires presence to be measured by the
number of "car-days" each car class spent in the State during
the preceding calendar year.
Each month, five railroad car companies report border crossing
data (movements in and out of California) to BOE, whose software
(1) processes this data, and (2) determines the number of days
each car was physically present in California during the
calendar year immediately preceding each lien date. However, as
referenced above, the software that BOE uses to measure
"car-days" is nearing the end of its useful life.
SB 357 (Hall) Page 2 of
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Proposed Law:
The bill would modify the ratio used to calculate the
base of the Private Railroad Car Tax. Specifically, instead
of multiplying the adjusted value of the car by the ratio
of the amount of days in service in California over the
total days in service, the bill changes the ratio to the
mileage in the state over total mileage.
The bill would prohibit the car's age at acquisition
from being used to calculate depreciation,
The bill would provide that improvements to the car
cannot be depreciated.
Related
Legislation: AB 2262 (Frazier, 2014) was identical to this
bill; it was held on this Committee's suspense file.
Staff Comments: This bill could result in administrative
efficiency gains for both PRC owners and BOE. A mileage-based
system to calculate the Private Railroad Car Tax would conform
to the methodology used by all other states that impose such a
tax, making compliance easier for owners. Additionally, BOE
notes that a mileage-based system is less complex and costly for
it to administer.
The estimate of annual revenue loss from this bill appears to be
volatile. For instance, BOE's current estimate of the annual
loss from SB 367 is considerably lower than the $1.2 million
estimate that accompanied AB 2262. BOE's revenue estimation
methodology uses collected mileage data from companies that
comprise roughly three-fifths of total taxes imposed and then
extrapolates to the remainder of the population. A reporting
error was a contributing factor to 2014's estimate of higher
revenue loss. Complicating the calculation further is the fact
that the revenue estimate depends on two other variables: the
aforementioned private rail car tax rate, and an adjustment to
comply with the requirements of current federal law (the
Railroad Revitalization and Regulatory Reform Act). This bill's
estimated revenue loss of roughly $500,000 represents an average
over a long-run period. However, the revenue loss is 2015-16
could be higher if recent delays at the State's ports cause PRCs
SB 357 (Hall) Page 3 of
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to be physically in the State longer than would have happened on
the natural.
The methodological changes proposed by the bill would not impact
the assessments of individual companies in a uniform way.
Instead, most companies would benefit from the proposed changes,
but others could see assessments increase.