BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1394 (Hall) - Private railroad car tax: valuation
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|Version: March 28, 2016 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: April 25, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1394 would modify the apportionment method for
the private railroad car tax.
Fiscal Impact:
The Board of Equalization (BOE) indicates that this
measure would result in a General Fund revenue loss of $1.5
million in 2017-18, and $2.1 million annually thereafter.
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 a one-time cost of about $500,000.
Additionally, the bill would eliminate BOE's need to
continue its current $13,000 annual railroad car
registration subscription needed to verify the days that
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rail cars are present in the State.
Background: Private Rail Cars (PRCs) either transport the
owner's freight, or are leased to shippers. They are more
specialized than general freight cars owned by railroads, and
include oil tanks and refrigerated cars. Additionally, the PRC
industry is fairly concentrated: of 221 private rail car
taxpayers, 10 companies control 80 percent of the market, and 20
companies control 90 percent.
The PRC 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
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).
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.
Proposed Law: This bill would, among other things, change the
method of apportionment from the current system of car days
spent in California per year to an equally weighted average of
car days and mileage for 2017-18. Thereafter, the bill would set
mileage as the exclusive apportionment factor.
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Related
Legislation:
SB 357 (Hall, 2015) was similar to this bill.
Specifically, it also proposed changing to a mileage based
system. Additionally, the bill included valuation changes
to (1) eliminate additional depreciation given to cars
purchased used and (2) eliminate additional depreciation
given to new additions and betterments to existing cars.
Depreciation would have continued to be calculated for all
cars based on a 22- or 25-year life. The bill was held on
this Committee's Suspense File.
AB 2262 (Frazier, 2014) was identical to SB 357; and was
also held on this Committee's Suspense File.
Staff Comments: This bill could result in administrative
efficiency gains for both PRC owners and BOE. Utilizing 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 PRC owners.
Additionally, BOE notes that a mileage-based system is less
complex and costly for it to administer.
The Private Railroad Car Tax is the only property tax that flows
to the state's General Fund, where it generated $9.9 million in
2015, up from $5.9 million in 2009. Annual tax revenues vary,
and reflect a variety of factors, including the level of (1) new
PRC investment, and (2) the level of California economic
activity. 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), both of
which are developed by BOE's Research and Statistics Section and
approved by the Board Members. Comparing mileage and car-day
data for the last several years, BOE concludes that
transitioning to a mileage-based system would result in a
revenue loss of $1.5 million in 2017-18, and $2.1 million
annually thereafter.
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,
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but others could see assessments increase.
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