BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1329  


                                                                    Page  1





          Date of Hearing:   August 3, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          SB 1329  
          (Hertzberg) - As Amended May 31, 2016


           ----------------------------------------------------------------- 
          |Policy       |Revenue and Taxation           |Vote:|9 - 0        |
          |Committee:   |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
           ----------------------------------------------------------------- 


          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill extends the Centralized Fleet Calculation Program for  
          statewide assessment of certificated aircraft for property tax  
          purposes for one year, until fiscal year (FY) 2017-18.   

          FISCAL EFFECT:


          1)Unknown revenue impact relative to current law. Property tax  
            revenues for the additional year utilizing the lead assessor  
            methodology could be higher or lower than what would have  
            occurred absent this bill. 








                                                                    SB 1329  


                                                                    Page  2







          2)Minor administrative and implementation costs to the Board of  
            Equalization (BOE). 


          COMMENTS:


          1)Purpose. SB 1329 will maintain the status quo in terms of how  
            commercial aircraft are assessed for the purposes of property  
            taxation for an additional year. According to a recent letter  
            of support from Southwest Airlines, SB 1329 provides  
            additional time for negotiations between local county  
            assessors and the airline industry as the two parties continue  
            to negotiate possible changes to the commercial property tax  
            assessment process.


          2)Background. Prior to 1999, the state did not have a single or  
            specific assessment methodology for valuing certificated  
            commercial aircraft. Valuation was left to each county  
            assessor, leading to significant problems and conflicts over  
            inconsistent valuations, property tax apportionment, and  
            administrative cost and complexity. In 1998, a group of  
            counties and airline industry representatives agreed to  
            dispose of outstanding litigation and appeals over the  
            valuation of certificated aircraft and create a new assessment  
            methodology. That methodology was further refined by county  
            assessors and industry representatives in 2005, resulting in  
            the current method for valuing aircraft. 


            In addition to specifying the component metrics used to value  
            fleets, the methodology prescribes procedures for designating  
            a lead county assessor's office for each commercial air  
            carrier operating in California, allowing an airline to file  
            one property statement with the lead county, and prescribing a  
            centralized audit process. The lead county is designated by  








                                                                    SB 1329  


                                                                    Page  3





            Aircraft Advisory Subcommittee of the California Assessors'  
            Association. The lead county calculates the fleet fair market  
            value (FMV) of the airlines certificated aircraft and  
            transmits the valuation to other counties. Those counties then  
            determine their allocated portions of the fleet value based on  
            physical presence.


            Unless the existing methodology for valuing aircraft is  
            extended, both the assessors and airlines will have to deal  
            with multiple tax returns reporting the same information,  
            multiple audits and multiple county assessment appeals.  
            Furthermore, assessors would be able to use any valid method  
            to determine FMV, such as, for example, cost, income,  
            comparable sales, and published market value guides. 


          3)Appellate process. Earlier versions of this bill contained  
            language related to how a taxpayer (such as an airline) could  
            appeal a local assessor's valuation of commercial aircraft.  
            Under current law, any taxpayers seeking to appeal a local  
            assessment must contact the assessor to request  
            reconsideration. If this informal process fails to produce a  
            solution, then the taxpayer starts a formal appeals process  
            with the county's board of equalization. When a taxpayer  
            continues to disagree with a county's decision, the taxpayer  
            can file suit with the Superior Court, but the court can only  
            review the existing record to determine whether substantial  
            evidence supports the appeals board's decision. In these  
            cases, the court generally acts as the appellate court and  
            only grants review for "arbitrariness, abuse of discretion, or  
            failure to follow the standards prescribed by the  
            Legislature," as they see the county assessment appeals  
            process as performing the same fact-finding function as trial  
            courts. 


            Prior versions of this bill contained a provision that granted  
            airlines a right to a "trial de novo." This would have allowed  








                                                                    SB 1329  


                                                                    Page  4





            courts to receive and consider new evidence in the case of an  
            appeal of the local assessment of commercial aircraft. 


          4)Related legislation. AB 2622 (Nazarian) of 2016 extends the  
            sunset date for the current lead county system for an  
            additional three years as well as modifies the "representative  
            period" that is used when calculating an aircraft's assessed  
            value. That bill is currently pending in the Senate Committee  
            on Governance and Finance. 
          


          Analysis Prepared by:Luke Reidenbach / APPR. / (916)  
          319-2081