BILL ANALYSIS
AB 311
Page 1
GOVERNOR'S VETO
AB 311 (Ma)
As Amended September 2, 2009
2/3 vote
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|ASSEMBLY: |60-4 |(May 28, 2009) |SENATE: |36-3 |(September 4, |
| | | | | |2009) |
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|ASSEMBLY: |57-15|(September 9, | | | |
| | |2009) | | | |
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Original Committee Reference: REV. & TAX.
SUMMARY : Extends the Centralized Fleet Calculation Program for
statewide assessment of certificated aircraft for property tax
purposes until fiscal year (FY) 2014-15.
The Senate amendments :
1)Make a clarifying technical change to Revenue and Taxation
Code (R&TC) Section 1153.5.
2)Add double-jointing language to avoid chaptering out problems
with AB 852 (Fong), which was vetoed by the Governor.
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
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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 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
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the frequency and the amount of time that an air carrier's
aircraft makes contact and maintains situs within a county.
4)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.
5)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).
AS PASSED BY THE ASSEMBLY , this bill:
1)Extended, 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)Extended, until December 31, 2014, the application of the
following provisions of law that otherwise were scheduled to
sunset on December 31, 2010:
a) RT&C Section 441 that required a commercial air carrier
to file one annual property statement with a designated
"lead" county; and,
b) RT&C Section 1153.5 that established the procedure for
selecting a lead county to calculate an airline's fleet
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value and a coordinated multi-county audit team to perform
mandatory audits of commercial air carriers.
3)Imposed a state-mandated local program and provided that, if
the Commission on State Mandates determined that this bill
contained costs mandated by the state, reimbursement for those
costs would be made as required by the statute.
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."
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
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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
(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
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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.
GOVERNOR'S VETO MESSAGE :
"This bill is intended to represent the continuation of an
important tax assessment methodology that was agreed to by all
the major airlines in 2005. The original methodology brought
consistency and greater efficiency to the assessment of
certificated aircraft. However, this bill makes changes that do
not reflect consensus. Since the existing methodology does not
end until December 31, 2010, I would encourage the author and
stakeholders to reach that consensus and send me legislation to
that effect.
"I look forward to signing a bill that is agreed to by all the
parties involved."
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0003386