BILL ANALYSIS
AB 311
Page 1
ASSEMBLY THIRD READING
AB 311 (Ma)
As Amended May 4, 2009
Majority vote
REVENUE & TAXATION 7-1 APPROPRIATIONS 13-1
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|Ayes:|Charles Calderon, Beall, |Ayes:|De Leon, Ammiano, Charles |
| |Coto, Ma, Nielsen, | |Calderon, Davis, Duvall, |
| |Portantino, Fong | |Fuentes, Hall, |
| | | |John A. Perez, Price, |
| | | |Skinner, Solorio, Audra |
| | | |Strickland, Torlakson |
| | | | |
|-----+--------------------------+-----+---------------------------|
|Nays:|DeVore |Nays:|Nielsen |
| | | | |
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SUMMARY : Extends the Centralized Fleet Calculation Program for
statewide assessment of certificated aircraft for property tax
purposes until fiscal year (FY) 2014-15. Specifically, this bill :
1)Extends, until FY 2014-15, the application of the current
assessment methodology for determining the fair market value of
certificated aircraft owned by commercial air carriers for
property tax purposes.
2)Extends, until December 31, 2014, the application of the
following provisions of law that otherwise are scheduled to
sunset on December 31, 2010:
a) Revenue and Taxation Code (RT&C) Section 441 that requires
a commercial air carrier to file one annual property
statement with a designated "lead" county; and,
b) RT&C Section 1153.5 that establishes the procedure for
selecting a lead county to calculate an airline's fleet value
and a coordinated multi-county audit team to perform
mandatory audits of commercial air carriers.
3)Imposes a state-mandated local program and provides that, if the
Commission on State Mandates determines that this bill contains
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costs mandated by the state, reimbursement for those costs will
be made as required by the statute.
EXISTING LAW :
1)Provides that all property is taxable unless explicitly exempted
by the California Constitution or federal law. Limits ad
valorem taxes on real property to 1% of the full cash value of
that property as set forth in the California Constitution.
Requires that real and personal property be taxed at the same
rate (Section 2 of Article XIII of the California Constitution).
However, personal property, which generally is defined as
property other than real property, is subject to property tax of
1% of the assessed value of the taxable personal property.
Thus, the property tax applicable to personal property is
calculated based on the market value of that property, rather
than its "full cash value."
2)Requires each county to impose an ad valorem property tax rate
of 1% of the assessed value of the taxable property located in
that county, including any taxable certificated aircraft within
the county. Typically, certificated aircraft are commercial
aircraft operated by air carriers for passenger and freight
service, while general aircraft are typically privately owned
aircraft. General aircraft are assessed on an
aircraft-by-aircraft basis and an assessment is made only in a
single county where the aircraft is habitually situated.
Certificated aircraft are valued for purposes of property
taxation under a "fleet" concept, which means that the basis of
the assessed value is not the value of any single aircraft owned
by an air carrier, but the value of all aircraft of each
particular fleet type that is flown into California. Types are
grouped by make and model. Because certificated aircraft are
movable, they are often located in more than one county during
an assessment year, and assessments are made for each county in
which the aircraft in the fleet land to reflect actual presence
in California.
3)Prescribes a centralized assessment methodology for valuing
certificated aircraft for FYs 2005-06 through 2010-11. Also,
until January 1, 2011, allows a commercial air carrier to file a
single, consolidated property statement with a designated "lead"
county for all certificated aircraft that has acquired a tax
situs in California. The centralized assessment methodology is
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based on a formula to be used by the "lead" county in
determining the preallocated fair market value of each make,
model, and series of mainline jets, production freighters,
converted freighters, and regional aircraft with a tax situs
within California for property tax purposes. Once the "lead"
county calculates the preallocated value of the aircraft, the
information is transmitted to all other counties within which
the airline has acquired a tax nexus. Each individual county
then determines its allocated portion of the fleet based on the
flight data for that particular county. R&TC Section 1152
provides an allocation formula to determine the frequency and
the amount of time that an air carrier's aircraft makes contact
and maintains situs within a county.
1)Requires assessors to audit once every four years the personal
property holdings of any property owner with an assessed value
of more than $400,000 (RT&C Section 469). Until December 31,
2010, allows an audit team comprised of staff from one to three
counties to perform a mandatory audit of a commercial air
carrier. The work performed by the audit team is deemed to have
been made on behalf of each county for which a mandatory audit
would otherwise be required under RT&C Section 469.
1)Defines the term "certificated aircraft" as "aircraft operated
by an air carrier or foreign air carrier engaged in air
transportation, as defined in subdivisions (3), (5), (10), and
(19) of Section 101 of Title of the "Federal Aviation Act of
1958" (P.L. 85-726; 72 Stat. 731), while there is in force a
certificate or permit issued by the Civil Aeronautics Board of
the United States, or its successor, or a certificate or permit
issued by the California Public Utilities Commission, or its
successor, authorizing such air carrier to engage in such
transportation." (RT&C Section 1150).
FISCAL EFFECT : The State Board of Equalization (BOE) estimates
that this bill will have no revenue impact.
COMMENTS : According to the author, "AB 311 is needed to ensure
that administrative efficiencies created by AB 964 continue for
both the airlines and assessors. AB 964 created a fair and
equitable statewide valuation of certificated aircrafts. The
Centralized Fleet Calculation Program has allowed assessors to
carry out their mandated responsibility to fairly assess taxable
property in an efficient manner."
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The sponsor of this bill, California Assessors' Association,
argues that the existing Centralized Fleet Calculation Program,
which was established by AB 964 (Horton), Chapter 699, Statutes of
2005, has been a success. The program "has allowed assessors to
carry out their mandated responsibility to fairly assess all
taxable property within their jurisdiction in an efficient manner"
while streamlining the property tax process for commercial
airlines. The sponsor also states that the "total annual cost
savings statewide for assessors with centralized valuation and
audit and the avoidance of assessment appeals is estimated as over
$3.4 million." The proponents state that the existing Centralized
Fleet Calculation Program provides an equitable and consistent
formula in valuing aircraft and allows airlines to plan
accordingly for the next five years. Additionally, the
proponents emphasize the importance of the current practice of
designating one lead county and allowing airlines to file only one
property tax return with that county.
The opponents argue that the "unanticipated revision of the
Airline Pricing Guide (APG) in combination with the formula
attached to the application of the APG contained in current
statute has resulted in precipitous and unexpected rises in tax
liability for Southwest Airlines." The opponents suggest either
an increase to 20% in the percent discount from the APG of 10% or
an extension of the sunset to no more than three years to
precipitate evaluation and discussion of the methodology. The
opponents state that the existing assessment methodology was not
intended to be a permanent solution to airline valuation issues
and the sunset provisions are necessary to motivate a periodic
review of that methodology.
Prior to 1999, no specific assessment methodology procedure for
valuing certificated aircraft or for valuing the carrier's
possessory interest in the publicly owned airport existed in
California. In 1998, a group of counties and airline industry
representatives entered into a written settlement agreement to
dispose of outstanding litigation and appeals over the valuation
of possessory interest assessments in airports and the valuation
of certificated aircraft. The settlement agreement created a new
assessment methodology for valuing aircraft that applied to FY
1998-99 to FY 2002-03 and was codified in a three-piece
legislative package [AB 1807 (Takasugi), Chapter 86, Statutes of
1998, AB 2318 (Knox), Chapter 85, Statutes of 1998, and SB 30
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(Kopp), Chapter 87, Statutes of 1998]. In 2005, the
representatives of the airline industry and a county assessors
working group, jointly, refined that valuation methodology,
recognizing the need to distinguish between different types of
aircraft and to detail the specific calculation of the variable
components that were previously lacking.
Committee staff notes that, prior to 1998, the valuation of
aircraft had been contentious and challenging for both county
assessors and commercial air carriers but the codified valuation
methodology has reduced those conflicts. The existing centralized
assessment of certificated aircraft provides certainty and
predictability for both assessors and airlines. Further, the
current procedure of designating a lead county assessor's office
to calculate the preallocated fleet value ensures that airlines
report the same information to every county, resulting in a
uniform statewide assessment. As BOE staff points out in its
analysis of this bill, "Absent a codified methodology, there is no
guarantee that the values determined by each individual county
assessor would be the same," since property appraisal is
subjective and opinions of value differ. Finally, the centralized
assessment of aircraft greatly reduces administrative costs for
both parties. As reported by the author, if the existing
centralized valuation methodology and the centralized audit
program are not extended, 236 additional fleet calculations and
390 additional statewide mandatory audits would be required,
resulting in an annual cost of approximately $1.3 million, and
$1.8 million, respectively.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098
FN: 0000851