BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1329|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 1329
Author: Hertzberg (D)
Amended: 5/31/16
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 4/13/16
AYES: Hertzberg, Beall, Hernandez, Lara, Pavley
NO VOTE RECORDED: Nguyen, Moorlach
SENATE JUDICIARY COMMITTEE: 4-2, 4/19/16
AYES: Moorlach, Anderson, Hertzberg, Wieckowski
NOES: Leno, Monning
NO VOTE RECORDED: Jackson
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Property taxation: certificated aircraft
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
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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 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,
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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 extends the current provisions of the lead assessor
methodology to value certificated aircraft until the 2017-18
fiscal year.
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 (2006) also
directed the lead assessor to audit the airline every four
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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
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.
Related/Prior Legislation
AB 2622 (Nazarian, 2016) extends the lead assessor methodology
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until the 2019-2020 fiscal year, and makes other procedural
changes to the methodology. The bill is currently on the
Assembly Floor.
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 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.
Implementation costs for the BOE would be minor and
absorbable.
SUPPORT: (Verified5/31/16)
Airlines for America
Alaska Airlines
American Airlines
Southwest Airlines
United Airlines
OPPOSITION: (Verified5/31/16)
None received
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ARGUMENTS IN SUPPORT: According to the author, "The
provisions outlined in current law relating to the centralized
assessment of aircraft will sunset December 31, 2016. 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
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, SB 1329
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."
Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
5/31/16 22:15:37
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