BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
SB 1329 (Hertzberg)
Version: April 14, 2016
Hearing Date: April 19, 2016
Fiscal: Yes
Urgency: No
TMW
SUBJECT
Property taxation: certificated aircraft
DESCRIPTION
This bill, in suits for the refund of locally assessed property
taxes relating to certificated aircraft, would require a trial
court to consider all evidence relating to the valuation of the
property under the rules of evidence and require the court to
base its decision upon the preponderance of the evidence before
it. This bill would also extend the 2016-17 fiscal year
termination date to fiscal year 2021-22 and the December 31,
2016, inoperative or repeal date to December 31, 2021, for
provisions relating to the determination of the fair market
value and taxation of certificated aircraft.
BACKGROUND
Under current case, law county boards of equalization are
quasi-judicial agencies, and their decisions regarding the
valuation of property are equivalent to the determination of a
trial court, which may be reviewed only for arbitrariness, abuse
of discretion, or failure to follow the standards prescribed by
law. Generally, however, current law provides that the scope of
review of quasi-judicial administrative agencies is limited to
whether the agency acted within its jurisdiction, and, whether,
if it is alleged that the agency abused its discretion, the
findings of the agency are not supported by substantial evidence
based on the administrative record.
In 1988, SB 2601 (Garamendi, Chapter 1372, Statutes of 1988)
would have expressly set forth the scope of superior court
jurisdiction in reviewing any action for a refund of property
taxes assessed by local counties or the State Board of
Equalization (BOE). The court would not be limited to a
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substantial review of the administrative record on which to base
its decision, but would be required to hear all evidence, which
could include expert testimony excluded by the local county
board or BOE, requiring independent judicial review relating to
the valuation of property admissible under the rules of
evidence. SB 2601 also required the court to base its decision
on the preponderance of the evidence before it. The stated
purpose of that measure was to enable taxpayers to have evidence
of property valuation that has been conclusively determined by a
county board re-weighed by the Superior Court in a trial de novo
(new trial). Prior to its passage, SB 2601 was subsequently
scaled back to only authorize independent judicial review in
actions for a refund of state-assessed property taxes. Unlike
local county property assessments where the local county
assessor establishes the property tax and an appeal of that
assessment is reviewed by a separate local county board of
equalization, the BOE is both the state assessing agency and the
administrative reviewer.
SB 657 (Maddy, Chapter 498, Statutes of 1995) initially extended
to all local county tax refund actions the trial de novo
established for BOE refund actions established in SB 2601. This
provision was subsequently amended out of that bill. This bill
contains the same provision but would only apply to actions
relating to certificated aircraft, which are aircraft authorized
under federal law to engage in air transportation.
SB 1903 (Maddy, 1996), among other things, also contained a
provision similar to this bill and authorized suits for the
refund of locally assessed property taxes to require trial
courts to independently review all evidence. While SB 1903 was
in this Committee, the bill failed passage with that provision.
The bill was amended in this Committee to strike that provision
and instead provide independent judicial review of specified
evidence submitted by a taxpayer to rebut the presumption that
the county board's findings are correct, after the trial judge
determines that a preponderance of the evidence in the record
supports a different factual finding. SB 1903 passed out of the
Committee but was subsequently held in the Senate Appropriations
Committee.
SB 1293 (Schiff, 1999) also initially contained a provision
similar to this bill but was amended in this Committee to
instead, in a suit for refund of locally assessed property
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taxes, require the trial court to exercise its independent
judgment on the evidence, as specified. SB 1293 was ultimately
gutted and amended for a new author and restricted the labeling
of wine originated in Napa County. (SB 1293 (Chesbro, Ch. 831,
Stats. 2000).)
AB 934 (Hertzberg, 2001) initially contained an independent
judicial review provision substantially similar to this bill but
was amended in the Senate Local Government Committee to instead
require the trial court to exercise independent judgment on the
evidence, as specified, in a suit for refund of locally assessed
property taxes or a judicial action filed by the assessor
challenging the findings of the county board. If the county
prevailed in the suit for refund of locally assessed property
taxes, AB 934 also required the taxpayer to reimburse the county
for the full amount of both its attorney's fees, and the
assessor staff time necessary for litigation support incurred in
litigating the factual issues in the action. After passing out
of the Senate Local Government Committee, AB 934 was held in the
Senate Rules Committee.
This bill, until January 2, 2022, would expand independent
judicial review to local county property tax refund actions for
certificated aircraft.
This bill was heard by the Senate Committee on Governance and
Finance on April 13, 2016, and passed out on a vote of 5-0.
This bill was double-referred to the Senate Committee on
Governance and Finance because it contains provisions relating
to the determination of the fair market value and taxation of
certificated aircraft.
CHANGES TO EXISTING LAW
Existing law , the California Constitution, requires all property
taxed by local government to be assessed in the county, city,
and district in which it is situated. (Cal. Const., art. XIII,
sec. 14.)
Existing law specifies that the county board of supervisors, or
one or more assessment appeals boards created by the county
board of supervisors, shall constitute the county board of
equalization for a county, and two or more county boards of
supervisors may jointly create one or more assessment appeals
boards which shall constitute the county board of equalization
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for each of the participating counties. (Cal. Const., art.
XIII, sec. 16.)
Existing law provides that after payment of a tax claimed to be
illegal, an action may be maintained to recover the tax paid,
with interest, in such manner as may be provided by the
Legislature. (Cal. Const., art. XIII, sec. 32.)
Existing law requires all taxable property, except State
assessed property, to be assessed by the assessing agency of the
taxing agency where the property is situated. (Rev. & Tax Code
Sec. 404.)
Existing law , for the 2005-06 fiscal year to the 2016-17 fiscal
year, inclusive, provides a method for determining the
preallocated fair market value of certificated aircraft. (Rev.
& Tax Sec. 401.17.)
Existing law defines "certificated aircraft" to mean aircraft
operated by an air carrier or foreign air carrier engaged in air
transportation, as defined under federal law, while there is in
force a certificate or permit issued by the Federal Aviation
Administration, or its successor, authorizing such air carrier
to engage in such transportation. (Rev. & Tax Code Sec. 1150.)
Existing law , until December 31, 2016, requires a commercial air
carrier whose certificated aircraft is subject to tax
assessment, as specified, to file with the lead county
assessor's office, as specified, one signed property statement
for its personal property at all airport locations and fixtures
at all airport locations. (Rev. & Tax Code Sec. 441.) Existing
law, until December 31, 2016, allows each commercial air carrier
to file one schedule for all of its certificated aircraft that
have acquired situs in California, allows flight data required
to compute certificated aircraft allocation to be segregated by
airport location, and authorizes a commercial air carrier to
file the property statement electronically through the
California Assessor's Standard Data Record (SDR) network. (Id.)
Existing law , for purposes of determining the assessing agency
of taxable property, deems certificated aircraft to be situated
only in those taxing agencies in which the aircraft normally
make physical contact with sufficient regularity to entitle such
agencies to tax the aircraft under the laws and Constitution of
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the United States. (Rev. & Tax Code Sec. 1155.) Flight time
within the state is allocated as follows:
if the aircraft takes off in one taxing agency which is
entitled to tax (within the meaning of the preceding sentence)
and lands in another agency which is entitled to tax, the
flight time between such taxing agencies shall be allocated
one-half to each such agency; and
if the aircraft arrives from out of state or leaves the state,
the flight time from or to the state boundary shall be
allocated to the taxing agency entitled to tax in which the
aircraft first lands or last takes off, as the case may be.
(Id.)
Existing law requires taxpayers to file a claim for refund
before a civil action can be commenced. (Rev. & Tax Code Sec.
5142.)
Existing law requires all courts where actions are brought
regarding tax corrections, cancellations, and refunds (with the
exclusion of actions regarding state annual assessments of
pipelines, flumes, canals, ditches, and aqueducts lying within
two or more counties and property, except franchises, owned or
used by regulated railway, telegraph, telephone companies, or
car companies) to give those actions precedence over all other
civil actions, except actions to which special precedence is
given by law, in the matter of setting the same for hearing or
trial, and in hearing the same, to the end that all those
actions shall be quickly heard and determined. (Rev. & Tax Code
Sec. 5149.)
Existing law , in suits for the refund of state-assessed property
taxes, provides that the trial court shall not be restricted to
the administrative record, but shall consider all evidence
relating to the valuation of the property admissible under the
rules of evidence, and requires the court to base its decision
upon the preponderance of the evidence before it. (Rev. & Tax
Code Sec. 5170.)
This bill would extend the method for determining the
preallocated fair market value of certificated aircraft from
fiscal year 2005-06 to fiscal year 2021-22.
This bill would extend from December 31, 2016, to December 31,
2021, the commercial air carrier property statement provisions.
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This bill , until January 1, 2022, would extend to taxpayer
refund civil actions regarding certificated aircraft the
requirement that a trial court consider all evidence relating to
the valuation of the property admissible under the rules of
evidence and require the court to base its decision upon the
preponderance of evidence before it.
COMMENT
1. Stated need for the bill
The author writes:
Section One of Article XIII of the California Constitution
provides that all property is taxable and shall be assessed at
the same percentage of fair market value, unless explicitly
exempted by the Constitution or federal law. While the
Constitution limits the maximum amount of any ad valorem tax
on real property at 1 [percent] of full cash value, and
precludes reassessment unless the property is newly
constructed or changes ownership, assessors value personal
property like certificated aircraft each year. The
Constitution requires that property be assessed ? in the
county, city, or district, in which it is situated. While the
Legislature first directed county assessors to tax property in
1849, assessors in different counties often applied different
tax rates and methods of assessment. To remedy the lack of
uniformity, the California Constitution of 1879 created the
Board of Equalization (BOE) to equalize rates and assessment
practices among counties. In 1910, voters amended the
Constitution to direct BOE to value property owned by
railways, companies selling gas and electricity, or telephone
companies, as these companies own property that crosses county
lines. The Constitution additionally allows the Legislature
to authorize BOE assessment of property owned or used as
"public utilities."
I. Valuing Certificated Aircraft. The lead assessor
methodology will sunset for the 2017-18 fiscal year unless the
Legislature extends it, in which case assessors will again
value certificated aircraft based on its fair market value
without specific guidance from state law.
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II. Trial De Novo. The locally-assessed property tax is the
only one in California where the assessor as prosecutor can be
the same as the assessment appeals board sitting in judgment.
This process is fundamentally unfair to taxpayers, which is
why it is so rare both in California and in other states. Tax
experts have often recommended trial de novo for local
property taxes in various forms, arguing that a judicial
process will determine more accurate values than assessment
appeals boards. These experts argue that assessment appeals
boards or county boards of supervisors sitting as the county
board of equalization can have an interest in the revenue
consequences of appeals, can be too deferential to assessors,
or lack the experience and expertise necessary to set
appropriate value, especially for more complex property like
certificated aircraft. While setting a precedent by applying
de novo review to only one form of locally-assessed personal
property, certificated aircraft is already unique, as it is
currently the only form of personal property with its own,
distinct valuation methodology set in state law. Aircraft is
also distinct from other locally-assessed property because it
travels between jurisdictions, and can have its economic value
change due to forces beyond the control of its owners, like
economic recessions and terrorist attacks.
Senate Bill 1329 extends the lead-assessor model of valuing
certificated aircraft to [fiscal year 2021-22] . . ., and
directs that court[s] must consider suits for the refund of
locally assessed property taxes on certificated aircraft de
novo by adding these valuations into the statute that
currently applies only to state assessments conducted by [the
State Board of Equalization (BOE)]. Where a taxpayer
challenges a lead assessor's valuation of certificated
aircraft, the court shall not be restricted to the
administrative record, but must consider all evidence relating
to the valuation under the rules of evidence, and base its
decision upon the preponderance of the evidence. The bill's
trial de novo authorization sunsets . . ., at which time the
law reverts to its current state.
2. Standard of review and trial de novo
Article XIII of the California Constitution provides the
framework for the assessment of property taxes by local
governments. Section 16 of that Article provides that the
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county board of supervisors, or one or more appeals boards
created by the county board of supervisors, shall constitute the
county board of equalization for the county. The county board
of equalization is solely responsible for equalizing the values
of all property on the local assessment role by adjusting
individual assessments. (Cal. Const., art. XIII, sec. 16.)
Most counties with any sizable population exercise their right
under this constitutional provision to appoint an assessment
appeals board, or boards, to act as the county board of
equalization.
No judicial action challenging a property tax assessment or
requesting a refund may be brought unless a claim has first been
brought and refused by the county board of equalization, and no
recovery shall be allowed in judicial action for refund upon any
ground not specified in the original refund claim. (Rev. & Tax
Code Sec. 5142.) A county board is not bound by technical rules
of evidence. (Norby Lumber Co. v. County of Madera (1988) 202
Cal.App.3d 1352, 1362.) The duty of conclusively determining
the value of the property and the fairness of the assessment is
conferred upon the local county board of equalization, which
bases its determination upon the merits of the controversy.
(Ibid.) As such, the taxpayer has no right to a trial de novo
in the superior court to resolve conflicting issues of fact as
to the taxable value of the property. (Ibid.) The decision of
a county board of equalization is equivalent to the
determination of a trial court and may be reviewed only for
arbitrariness, abuse of discretion, or failure to follow the
standards prescribed by law. (Bret Harte Inn, Inc. v. City &
County of San Francisco (1976) 16 Cal.3d 14.)
Accordingly, the court must uphold the county board's decision
on an issue of fact if it is supported by "substantial
evidence," which means merely that the decision must be
supported by "credible" evidence in the administrative record.
The court has no power to exercise its independent judgment on
the evidence, and the "trial" is confined to the record
presented by the board, with no new evidence introduced. The
standard of review is to be distinguished from a "weight of the
evidence" test, which would require a finding, based on
independent evaluation of the evidence, that the board's
decision was supported by a preponderance of the evidence. This
restricted standard of review applies only to issues of fact,
which generally means the issue of whether the assessment method
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used was applied correctly. A challenge to the validity of the
method itself would be an issue of law.
Code of Civil Procedure Section 1094.5 provides for both an
independent judgment and a substantial evidence review of
administrative decisions. Where it is claimed that the findings
are not supported by the evidence, in cases in which the court
is authorized by law to exercise its independent judgment on the
evidence, abuse of discretion is established if the court
determines that the findings are not supported by the weight of
the evidence, and in all other cases, abuse of discretion is
established if the court determines that the findings are not
supported by substantial evidence in the light of the whole
record. (Code Civ. Proc. Sec. 1094.5(c).)
If the administrative decision does not involve, or
substantially affect, any fundamental vested right, the trial
court must still review the entire administrative record to
determine whether the findings are supported by substantial
evidence and whether the agency committed any errors of law, but
the trial court need not look beyond that whole record of the
administrative proceedings. (Bixby v. Pierno (1971) 4 Cal. 3d
130, 144.) Courts can carefully scrutinize administrative
decisions which substantially affect vested, fundamental rights,
particularly the right to protect one's trade or profession.
(Id., p. 143.) If the decision of an administrative agency will
substantially affect such a right, the trial court not only
examines the administrative record for errors of law but also
exercises its independent judgment upon the evidence disclosed
in a limited trial de novo. (Ibid.)
Notably, this Committee's analysis of the legislation that
enacted SB 2601 (Garamendi, Chapter 1372, Statutes of 1988) and
authorized independent judicial review of BOE determinations
noted that the arguments in favor of that bill emphasized "the
need for the hearing of appropriate evidence by the superior
courts is especially great in the case of state assesses,
because the SBE (State Board of Equalization) is both the
assessing agency and the administrative reviewer. The sponsor,
therefore, is concerned about the fact that the SBE reviews its
own assessments. It suggests that a more favorable arrangement
is found in the case of locally assessed property where the
assessor and the assessment appeals board which review the
assessor's assessment are at least separate." (Sen. Com. on
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Judiciary, Analysis of Sen. Bill No. 2601 (1987-1988 Reg. Sess.)
as amended Apr. 4, 1988; emphasis added.) However, this bill
now seeks to expand independent judicial review and a trial de
novo to apply to locally assessed property, requiring full
review of the administrative case, as well as potential expert
valuation testimony or other evidence that may have been
excluded by the appeals board or not provided by the taxpayer,
but only for commercial airlines with certificated aircraft.
According to the California Taxpayers Association (CTA), in
support:
In 1910, the California Constitution was amended to transfer
industries with significant impacts on critical statewide
functions that owned property across county lines from local
assessment to central state assessment under the State Board
of Equalization. These industries include utilities,
railroads and telecommunications, and as state assessees they
are granted trial de novo. The first commercial passenger
airline did not exist until 1914 -- 4 years after the
constitutional amendment. Had the airlines existed in 1910,
they would have been covered by the constitutional amendment,
and therefore afforded trial de novo as state assessees.
Airlines for America (A4A), sponsor, contends that certificated
aircraft should be treated like public utilities for purposes of
local county tax assessments because aircraft are transported to
multiple jurisdictions. Indeed, public utilities cross multiple
county lines but are assessed by the BOE, not local counties,
and, thus, receive independent judicial review by trial courts.
A4A asserts that certificated aircraft should not be assessed at
the local level, but, instead, have a centralized assessment at
the state level, like public utilities. According to A4A, an
effort last year attempted to move local assessment of
certificated aircraft to the state level, but that effort was
unsuccessful. Since commercial airlines were unable to get
centralized state assessments, they are now attempting to obtain
independent judicial review of local county assessments of
certificated aircraft.
3. Providing fairness to commercial airlines in tax disputes
The author asserts that the locally-assessed property tax is the
only one in California where the assessor as prosecutor can be
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the same as the assessment appeals board sitting in judgment.
The author argues that this process is fundamentally unfair to
taxpayers, which is why it is so rare both in California and in
other states. The author contends that "tax experts have often
recommended trial de novo for local property taxes in various
forms, arguing that a judicial process will determine more
accurate values than assessment appeals boards. These experts
argue that assessment appeals boards or county boards of
supervisors sitting as the county board of equalization can have
an interest in the revenue consequences of appeals, can be too
deferential to assessors, or lack the experience and expertise
necessary to set appropriate value, especially for more complex
property like certificated aircraft."
The author points to a recent audit performed by the Santa Clara
Management Audit Division, which determined that conflicts of
interest existed in the local county appeals board process.
That audit found that although Santa Clara County's Local Rules
require the Clerk to schedule assessment appeals, "[i]n
practice, however, the Office of the Assessor and individual
appraisers have significant influence over when an appeal will
be heard, and by which board, through the development of
proposed hearing agendas that are generally accepted by the
Clerk's office." (Management Audit Division of Santa Clara
County, Management Audit of the County of Santa Clara Assessment
Appeals Process (July 15, 2015)
[as of Apr. 14, 2016] p. ii.) The audit stated
that because the specific dates on which each of the three
boards are scheduled to hear cases are known in advance,
preparing these proposed agendas allows the Office of the
Assessor influence over which appeals board will hear a
particular case. (Id., p. 43.) Further, this problem had an
adverse effect and "[t]he lack of adequate controls on the
agenda-setting process, including any formal tracking of the
distribution of appeals, raises concerns about the appearance of
potential conflicts of interest." (Id., p. 42.)
Additionally, the audit concluded that "[c]urrent County
practice does not appear to follow California constitutional
requirements which mandate 'uniformity in the processing and
decision of assessment appeals applications,' . . . ." (Supra,
p. 51.) That audit recommended amending the current
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administrative procedures to require the Clerk of the Board to
establish assessment appeals board agendas based on receiving a
"notice of readiness" from the Office of the Assessor for each
appeal to place the Clerk of the Board in full compliance with
the California Constitution and the County's Local Rules
governing the appeals process. (Id., p. 42.)
The author argues that while setting a precedent by applying de
novo review to only one form of locally-assessed personal
property, certificated aircraft is already unique, as it is
currently the only form of personal property with its own,
distinct valuation methodology set in state law. The author
notes that aircraft is also distinct from other locally-assessed
property because it travels between jurisdictions, and can have
its economic value change due to forces beyond the control of
its owners, like economic recessions and terrorist attacks.
Opponents of the bill argue that the shifting of duties and
responsibilities of the county board of equalization to the
trial courts for air carrier assessment appeals is troubling
because judges lack expertise on property valuation methods,
whereas an assessment appeals board member is appointed to his
or her position based on career experience in relevant fields.
Opponents point out that each board member is required by law to
successfully pass State BOE training on valuation methods,
procedures, and property conduct, which is not required of trial
court judges.
4. Constitutionality concerns
The opposition notes that the California Constitution confers
quasi-judicial powers and duties upon local county boards of
equalization in connection with their assessments and review of
contested assessments of locally assessed property. As such,
legislation providing for a departure from the "substantial
evidence" standard of review, whereby the trial court would not
be restricted to the administrative record but instead would be
required to independently consider all admissible evidence
regarding contested local assessments, would, if enacted, be
unconstitutional. The assessment of property for the purpose of
taxation is a function of the executive branch of the government
and the judiciary has no power or jurisdiction to inquire as to
the actual value of property to determine whether or not it has
been properly assessed. (Domenghini v. County of San Luis
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Obispo (1974) 40 Cal.App.3d 689, 696.)
In response, the author states that "[c]ounties and assessors
argue that the Legislature can't Constitutionally delegate
authority to courts to review local assessments, citing a
Legislative Counsel Enrolled Bill Report from 1988 on SB 2601,
and Legislative Counsel Opinion #14821 from 2001, which argue
that case law precludes the Legislature from enacting a statute
that usurps the constitutionally-based fact finding authority of
an administrative body. Counsel states that this same reasoning
applies to any bill that would allow a trial court to consider
evidence outside the county board of equalization's
administrative record. However, SB 1329 adopts a more positive
view of legislative power, instead arguing that the Legislature
can enact statutes directing courts to consider new facts
because the Constitution contains no specific language
prohibiting it from doing so, and the Constitution explicitly
allows the Legislature to provide a manner for taxpayers to
maintain an action to recover taxes paid illegally. A trial
court affirmed SB 2601 in 1989, for which the Third District
Court of Appeals rejected a writ of mandate the year after,
despite the Legislative Counsel guidance."
5. Effect on administrative hearings
Opponents assume that the intent of the bill is to permit the
trial court to re-try the determinations made by county boards
as to factual and valuation questions. Opponents assert that if
a complete trial de novo is granted as provided by this bill,
the importance of the administrative review function of the
county boards would be lessened. Commercial airlines would
still be required to exhaust administrative remedies before
going to court, but the exhaustion principle would be
undermined. The administrative hearing would become more of a
formality than an effective means of resolving disputes. Both
parties by the nature of the system would tend to save their
best evidence for the courts.
Furthermore, the opposition notes that while this bill is
targeted just to benefit commercial airlines, other industries
may demand a similar special property reduction if this bill
becomes law. Opponents note that during the last two decades,
the California Legislature has rejected this assault on a fair
and equitable property tax system four times. Opponents note
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that each time trial de novo has been rejected on the merits, as
it is fundamentally inconsistent with previous initiatives to
reform government by improving efficiency, productivity and
performance. Opponents contend that this bill does just the
opposite by adding another layer of bureaucracy to benefit a
single industry.
6. Priority of taxpayer refund cases
Existing law provides that taxpayer refund actions enjoy
priority over all other civil actions. (Rev. & Tax Code Sec.
5149.) Excluded from this special priority are actions
regarding annual state assessments of property made pursuant to
Section 19 of Article XIII of the California Constitution, which
requires the BOE to annually assess water conduits and property,
except franchises, owned or used by regulated railway,
telegraph, or telephone companies, car companies operating on
railways in the State, and companies transmitting or selling gas
or electricity. (Rev. & Tax Code Secs. 5148, 721; Cal. Const.,
art. XIII, Sec. 19.) This property is subject to taxation to
the same extent and in the same manner as other property. (Cal.
Const., art. XIII, sec. 19.)
As discussed in Comment 2, public utilities are
multijurisdictional and cross county lines. The BOE assesses
the value of the assets of a utility using a unitary value of
the property, which is then transmitted to each county through a
"roll," and each county taxes the utility according to the
Board-adopted value of the property that is in that county.
(Verizon California Inc. v. Board of Equalization (2014) 230
Cal.App.4th 666, 672.) The BOE makes a formulary allocation
that has little or no relationship to the actual fair market
value of the particular assets situated within the jurisdiction.
(Ibid.) This formulary allocation system sets up a complex
case for courts to analyze under an independent judicial review,
especially when both sides to the action submit conflicting
expert testimony.
As noted by A4A, certificated aircraft are currently assessed
using a "lead county" system, where a single county recommends a
value for an air carrier's fleet of planes to the assessors of
all of the counties in which that carrier operates. A4A asserts
that "SB 1329 represents a 'middle ground' alternative, in which
for a 5-year period, industry agrees to abandon its call for
centralized assessment at the state level, and agree to continue
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the current lead county system and valuation methodology.
However, SB 1329 would modify the worst element of that existing
system by treating commercial aircraft fleets the same as other
types of property held by multi-jurisdictional quasi-public
utilities with regard to judicial review of lead county
assessments."
A4A contends that certificated aircraft should be treated like
public utilities for purposes of local county tax assessments
because, like public utilities, certificated aircraft traverse
multiple jurisdictions. Public utilities are assessed by the
BOE and receive independent judicial review by trial courts. On
the other hand, certificated aircraft are assessed at the local
level, so those refund actions challenging the assessments
receive only substantial review of the administrative record.
Existing law provides trial court priority for commercial
airline tax refund cases; however, public utilities are
expressly exempt from trial court priority, presumably due to
the complexity of valuation of those types of actions.
Certificated aircraft refund actions regarding local county
assessments only require the court to review the administrative
record to make a determination, so the current priority given to
these actions is not especially problematic. However, this bill
would significantly extend the court's time spent hearing these
actions because the court would have to consider more evidence,
such as expert witnesses testimony presented by the parties. As
such, maintaining the priority for these refund actions, with
independent judicial review, would result in courts taking even
longer to resolve other civil actions that were set aside in
favor of these taxpayer refund actions.
On the other hand, A4A argues that this bill, "by opening the
possibility of real court review of assessments of commercial
aircraft, will have the effect of requiring assessors to more
carefully consider all evidence of value prior to making the
assessment, and require assessment appeals boards to more
carefully consider appraisals and expert testimony bearing on
value in appeals hearings. The result will be more thorough,
well thought out and better assessment practices, ultimately
resulting in less litigation."
The Committee may wish to consider whether the bill should be
amended to exclude locally-assessed certificated aircraft tax
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refund cases from receiving priority status in trial courts.
7. Burden on the courts
Existing law requires independent judicial review for taxpayer
refund actions involving state-assessed property. (Rev. & Tax
Code Sec. 5170.) This bill, until January 1, 2022, would extend
that requirement to locally-assessed certificated aircraft tax
refund actions. Although this bill would affect a significantly
smaller number of taxpayer cases than prior bills to expand
trial de novo review to only those involving certificated
aircraft, this bill would require the court to hear and review
more evidence than provided in the administrative record.
Opponents contend that this bill would increase the case load,
cost and complexity of civil cases, and impair the courts'
ability to conduct civil trials in a timely manner, a
significant change in California's established property tax
system. Opponents also assert that the Legislature should be
working to reduce the caseloads in California courts, not
increasing their workloads as the trial de novo provision would
unquestionably do.
These cases are complex by nature and require significant
amounts of time to resolve. A Statement of Decision received by
the Committee in AT&T Communications of California, et al. v.
State Board of Equalization, et al., Superior Court of
California, County of Sacramento, No. 50082 and 50083
(Consolidated), February 1, 1991, at pp. 3-5, demonstrates the
burden on the courts in requiring independent review for this
type of multijurisdictional property. In that Decision, the
court noted:
By enacting Revenue & Taxation Code section 5170, effective
January 1, 1989, the Legislature imposed on already
overburdened trial courts the complex subject of valuation of
public utilities. Before the enactment of Section 5170, the
function of the Court was to review the administrative record
to determine whether or not the market value of property, as
determined by the [BOE], was supported by substantial
evidence. After the enactment of Section 5170, the function
of the court is to make an independent determination of market
value based on a preponderance of the evidence. The Court, by
the terms of Section 5170, is not restricted by the
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administrative record, but is to consider all evidence
relating to valuation which is admissible under the Rules of
Evidence. The burden of proof is upon the plaintiff property
owner. As is to be expected, the trial of such actions takes
substantially longer than the administrative hearing, as each
side not only presents those portions of the administrative
record which are favorable to its position but presents
testimony from experts and others to fortify its position.
The inevitable result of a trial of such actions is that the
Court, by its decision, imposes on the Board the judgment of
the trial judge as to how market value is to be determined.
If the trial judge determines that the [BOE's] methods of
valuation are incorrect, then it sends a message to the [BOE]
to change those methods of valuation to those the judge
believes to be appropriate, regardless of how difficult,
time-consuming, or expensive it may be to implement those
methods. In the usual situation, the Court must choose which
method of valuation is the one most likely to lead to the
correct value, unless it elects to pick and choose from the
expert testimony to arrive at a market value which the Court
determines is fair and reasonable under the evidence in the
case.
. . .
By virtue of hearing a case on valuation, a trial judge
ostensibly becomes an expert on valuation, whose opinion is to
be accepted over experts who have devoted their lives to the
subject. . . . If this Court has learned anything in this
trial, it is that determining the fair market value of a
public utility is a most difficult task. It is an issue over
which reasonable minds - both judges and experts on valuation
- may differ markedly.
Notably, this preliminary comment by the court was made 25 years
ago and long before the recent Recession and resulting budget
crises of the courts from which courts are still digging out.
The author states that "[c]ounties argue that assessment appeals
board[s], and not courts have more expertise at valuing
property, and allowing trial de novo would only increase
assessors' costs and workloads without any commensurate benefit
of more accurate assessments. However, allowing a court to
review new evidence only ensures additional review that
assessments are fair and correct, and would only be brought in
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truly justified circumstances given the cost of litigation. The
bill merely allow[s] appeals of aircraft assessment to be
treated in the same way as state-assessed utilities, whose
property is more like airlines' than land, improvements, and
buildings that make up most of an assessor's workload. With a
universe of fewer than 60 taxpayers being assessed under current
law's system for certificated aircraft, any impact on county or
court workload would likely be small."
8. Effect on pending litigation
A recent poll of several county civil courts revealed 43 open
commercial airlines cases in Alameda, 31 open cases in Kern
County, 73 open appeals in San Diego with another 13 lawsuits
consolidated with similar complex cases being heard in Orange
County, 19 open cases in San Mateo County. San Mateo County
also noted that from 2009-2014, there were 172 commercial
airline cases filed. Although the author asserts that the
universe of commercial airlines who would file a civil action
for a refund is under 60 taxpayers, those taxpayers can file
multiple actions, for multiple assessed years, in multiple
counties across the state.
Further, last year, A4A was quoted as saying in a Los Angeles
Times news article that there were at least "45 pending lawsuits
relating to county assessors misapplying the applicable property
tax statute. (M. Hiltzik, Los Angeles Times, Airlines are
Looking for a Big Tax Break in California (May 1, 2015)
[as of Apr. 2, 2016].) That
article also noted that "the lawsuits appear to be largely
identical, filed in 12 counties by the same Los Angeles law firm
on behalf of seven airlines. The cases all concern tax year
2009, and typically claim the same 70 [percent] reduction
American and United sought from the L.A. assessor. Some of
these claims already have been heard twice - first by the
assessors' office and then by county assessment appeals boards -
and rejected twice."
The author contends that the bill's de novo review would only
apply to claims for refunds for taxes paid in fiscal years on or
after the effective date of the bill. However, the author notes
that "some of the same unresolved issues raised in this previous
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litigation could be part of a suit reviewed de novo should the
measure be enacted."
The Committee may wish to consider amending the bill to clarify
that the trial de novo provisions in the bill would only apply
to civil actions filed on or after the effective date of the
bill.
9. Remaining details under the jurisdiction of the Senate
Committee on Governance and Finance
The remaining sections of this bill relate to extending the
unique methodology for assessing certificated aircraft and are
within the jurisdiction of the Senate Committee on Governance
and Finance. That committee passed this bill on April 13, 2016.
Support : Alaska Airlines; American Airlines; California Chamber
of Commerce; California Taxpayers Association; Southwest
Airlines; United Airlines
Opposition : California Assessors' Association; California
Association of Clerks and Election Officials; California State
Association of Counties; Office of the Assessor, County of Los
Angeles; Office of the Assessor, County of Santa Clara
HISTORY
Source : Airlines for America
Related Pending Legislation :
AB 2622 (Nazarian, 2016), among other things, would extend the
2016-17 fiscal year termination date to the 2019-20 fiscal year
and extend the December 31, 2016, inoperative or repeal date to
December 31, 2019, for provisions relating to the determination
of the fair market value and taxation of certificated aircraft.
SB 661 (Hill, 2015), among other things, would have transferred
assessment of personal property owned by commercial air carriers
to the Board of Equalization, including certificated aircraft,
commencing in 2017-18 fiscal year and would have extended the
lead assessor model one year to 2016-17. SB 661 was
subsequently gutted and amended to modify the "call before you
dig" laws governing excavations near subsurface installations
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and is in the Assembly pending referral.
Prior Legislation :
AB 1157 (Nazarian, Chapter 440, Statutes of 2015) extended the
2015-16 fiscal year termination date to the 2016-17 fiscal year
and the December 31, 2015, inoperative or repeal date to
December 31, 2016, for provisions relating to the determination
of the fair market value and taxation of certificated aircraft.
AB 384 (Ma, Chapter 228, Statutes of 2010) extended the 2010-11
fiscal year methodology for property tax assessment of
certificated aircraft to the 2015-16 fiscal year.
AB 964 (Horton, Chapter 699, Statutes of 2005) established the
unique methodology for fiscal years 2005-06 through 2010-11 that
would be extended indefinitely in this bill for the property tax
assessment of certificated aircraft in order to address the
special circumstances that befell this type of property and the
airline industry following the September 11, 2001, attacks.
AB 934 (Hertzberg, 2001) See Background.
SB 1293 (Chesbro, Chapter 831, Statutes of 2000) See Background.
SB 1293 (Schiff, 1999) See Background.
SB 1903 (Maddy, 1996) See Background.
SB 657 (Maddy, Chapter 498, Statutes of 1995) See Background.
SB 2601 (Garamendi, Chapter 1372, Statutes of 1988) See
Background.
Prior Vote : Senate Committee on Governance and Finance (Ayes 5,
Noes 0)
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