BILL ANALYSIS
AB 384
Page 1
Date of Hearing: January 11, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 384 (Ma) - As Amended: January 4, 2010
Majority vote. Fiscal committee.
SUBJECT : Property taxation: certificated aircraft assessment.
SUMMARY : Extends the Centralized Fleet Calculation Program for
statewide assessment of certificated aircraft for property tax
purposes until the 2015-16 fiscal year (FY). Specifically, this
bill :
1)Extends, until the 2015-16 FY, 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, 2015, 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)Specifies that it is "rebuttably" presumed that the
pre-allocated fair market value of certified aircraft is the
amount determined under the provided formula and, thus, allows
either the assessor or the taxpayer to challenge that amount
before an assessment appeals board.
4)Imposes a state-mandated local program and provides that, if
the Commission on State Mandates determines that this bill
contains costs mandated by the state, reimbursement for those
costs will be made as required by the statute.
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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.
2)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."
3)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.
4)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
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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. The
preallocated value is the lesser of:
a) The historical cost basis, as specified; or,
b) The value referenced in the "Airline Price Guide," a
commercially-prepared value guide for aircraft, as
adjusted.
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. An allocation ratio is the sum of two factors:
a) A ground and flight time factor; and,
b) An arrivals-and-departures factor. [Property Tax Rule
202 (c)].
The allocation ratio is applied to the full cash value of a
fleet of a particular type of aircraft operated by an air
carrier. The sum of the assessed allocated values for each
make and model used by an air carrier results in the total
assessed value of the aircraft for that air carrier for a
particular county.
The lead county is also required to transmit the property
statement related to an airport location to the situs county,
and each county is responsible for valuing personal property
and fixtures at its particular airport locations.
5)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
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mandatory audit would otherwise be required under RT&C Section
469.
6)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). Also defines
"converted freighter", "mainline jet", "production freighter",
and "regional aircraft".
7)Provides that the existing valuation methodology for
certificated aircraft applies for FYs 2005-06 through 2010-11,
and is repealed as of December 31, 2010.
FISCAL EFFECT : Unknown, but probably, this bill will have no
revenue impact since the existing valuation methodology is a
reasonable method for determining fair market value of
certificated aircraft and this bill simply extends the
application of this methodology.
Proposition 98 Fiscal Effect : None.
COMMENTS :
1)According to the author, "AB 384 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."
2)The sponsor of this bill, California Assessors' Association,
argues that the existing Centralized Fleet Calculation
Program, which was established by AB 964 (Horton) in 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
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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 at
over $3.4 million."
3)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. The proponents also
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.
4)Committee staff notes all of the following:
a) Background. 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 1998-99 FY to 2002-03 FY 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].
b) The 2005 Settlement Agreement. 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. For instance, with respect to calculating the
historical cost basis of the aircraft, each variable
component is specified:
i) Acquisition cost;
ii) Price index;
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iii) Percent good factor; and,
iv) Economic obsolescence is all taken into account.
With respect to APG, a "blue book" value guide for
aircraft, the use of values referenced in that guide is
delineated, recognizing that airlines, generally, receive a
fleet discount that is not reflected in prices listed in
the guide. The 2005 revisions to the valuation methodology
of certificated aircraft were codified by AB 964 (Horton),
Chapter 699, Statutes of 2005, (hereafter 'AB 964').
However, AB 964 specified that the revised formula for
determining the fair market value of certificated aircraft
of a commercial air carrier only applies for FYs 2005-06 to
2010-11. AB 964 also included repeal dates for the
provisions prescribing the procedures for designating a
lead county assessor's office for each commercial air
carrier operating certificated aircraft in California,
allowing a commercial air carrier to file one property
statement with the lead county, and permitting an audit of
those carriers on a centralized basis. Under existing law,
those provisions are set to expire on January 1, 2011.
c) Certainty and Predictability of the Existing Assessment
Methodology . 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. 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,
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and $1.8 million, respectively. 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.
d) The presumption of value . The assessment of
certificated aircraft is a difficult and complex task. As
such, the potential for litigation and assessment appeals
is significant. According to the author, often the best
solution is for the Legislature to establish a recommended
valuation methodology to arrive at a fair market value for
a particular type of property, in this case, certificated
aircraft. It is presumed by both the assessor and taxpayer
that the methodology will result in a fair and reasonable
assessment. However, since appraisal is not an exact
science, there may be instances where one of the parties
believes, and has clear evidence, that the assessment
resulting from the prescribed methodology is wrong. In
these instances, the issue is usually settled by an
assessment appeals board. This bill allows taxpayers and
assessors to appeal a value established by following a
legally prescribed methodology. The practical result of
"rebuttably presumed" language is that it clearly
recognizes that an assessment appeals board has the
discretion to set a fair market value where the facts
presented clearly overcome the presumption of correctness
in any given methodology.
e) Related Legislation .
AB 311 (Ma), introduced in the 2009 legislative session, was
almost identical to this bill. AB 311 would have extended
the Centralized Fleet Calculation Program for statewide
assessment of certificated aircraft for property tax
purposes until the 2014-15 FY. It did not contain the
"rebuttable presumption" language. The Governor vetoed AB
311, stating that:
"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
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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."
REGISTERED SUPPORT / OPPOSITION :
Support
American Airlines
United Airlines
California Assessors' Association (sponsor)
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098