BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE AB 1807 -
Takasugi
Senator Dede Alpert, Chair Amended: 6-11-98
Hearing: June 17, 1998 URGENCY Fiscal: NO
SUBJECT: Property Tax: Codifies a county/industry
settlement agreement relating to aircraft
valuation and airport possessory interests
DIGEST -- WHAT THE BILL DOES
EXISTING LAW provides for the valuation of aircraft.
However, the actual methodology for valuation has been left
to local assessors. A committee of the Assessors'
Association meets annually to recommend methods for valuing
aircraft. However, these valuation standards are advisory,
and actual valuation is in the hands of individual county
assessors.
Existing statute and Board of Equalization regulation
precludes assessing airline use of public airport runways
and taxiways. But court cases confirm assessors'
responsibility to assess these possessory interests.
As these issues have been particularly contentious,
they are associated with years of expensive litigation of
uncertain outcome.
THIS BILL is one of three bills that would codify an
agreement between county assessors and airlines with
respect to valuation of aircraft and valuation of
possessory interests in airport landing facilities for
property tax purposes.
This bill provides that if aircraft are valued
according to the method agreed to in the settlement, those
values shall be presumed to be correct (i.e., anyone
challenging the value will be obliged to prove it
erroneous). The value standard would be based on the
taxpayer's original cost for the aircraft, with various
adjustments.
The bill also contains a county-by-county table of
credits against future tax. The credits would range from
$18.3 million for Los Angeles, $13.5 million for San Mateo,
and $4.5 million for Alameda, down to $500 for Humboldt
County. These credit amounts are the amounts that each of
the counties has agreed to accept as its settlement amount,
in order "to dispose of certain lawsuits and assessment
appeals that have been filed, and to preclude the filing of
other claims relating to (1) the assessment, equalization,
and assessability of certain possessory interests in
publicly owned airports and (2) aircraft valuation and
equalization" by 13 named airlines. The credits would be
spread equally over the 1998-99 through 2002-03 fiscal
years.
FISCAL EFFECT:
This bill is part of a legislative package that would
codify a settlement agreement between counties and airlines
regarding litigation and appeals of various assessments of
aircraft and real property rights at airports.
Many court cases and assessment appeals regarding the
airline industry are currently outstanding. In aggregate,
they involve millions of dollars in property tax for past,
current, and future tax years. The large amount of tax
revenue involved is evidenced by the $50 million in credits
against future taxes which is specified in this bill.
The actual revenue effect of the settlement package is
indeterminate, since the eventual outcome of the pending
litigation and appeals, if carried to conclusion, cannot be
known. That is, the $50 million specified in the bill is
probably substantially less than the amount of county
losses should all current litigation be pursued.
COMMENTS:
A. Purpose of the bill
The bill, and its companions, SB 30 (Kopp) and AB 2318
(Knox), reflect a settlement package agreed to by 18
counties and 13 airlines, relating to valuation of
commercial aircraft, and to the taxability of possessory
interests in various airport facilities. These are issues
over which the counties and airlines have feuded for many
years, with neither side having confidence that its view
will prevail should litigation go to conclusion.
In the face of such uncertainty, and with little
desire to spend the rest of their careers in court, the
opposing parties have negotiated a broad agreement,
including valuation standards which are agreed upon, and a
schedule of credits against future tax. This is probably
the most efficient way of resolving an essentially
intractable problem.
B. Should bill be sunset if settlement is not concluded?
The approach taken in this package is odd in that the
settlement is all but agreed to by all parties, but not yet
signed. The settling parties await this legislation to
effectively "bless" their efforts. However, the
Legislature is in a slightly awkward position of
legislating ahead of the agreement, with no actual
documents in hand. It is understood that the settlement
and the bills will be signed at roughly the same time, and
all parties will come away "equally uncomfortable but
greatly relieved."
However, if for any reason the settlement is never
concluded, the law should probably not be changed as
proposed in this package of bills. Perhaps they should be
amended to provide that they only become operative if the
settlement is finally approved by the parties.
Support and Opposition
Support: Airlines and counties party to the agreement
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Consultant: Martin Helmke
June 19, 1998 10:33 AM