BILL ANALYSIS
AB 384
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 384 (Ma)
As Amended May 5, 2010
Majority vote
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|ASSEMBLY: |62-8 |(January 27, |SENATE: |33-0 |(August 12, |
| | |2010) | | |2010) |
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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) 2015-16.
The Senate amendments provide that, with respect to lien dates
occurring on and after January 1, 2011, the value of an
individual aircraft assessed to the original owner may not
exceed its original cost and that the pre-allocated fair market
value of an aircraft may be rebutted by certain evidence,
including appraisals, invoices, and expert testimony.
AS PASSED BY THE ASSEMBLY , this bill:
1)Extended, until FY 2015-16, 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, 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)Specified that it is "rebuttably" presumed that the
pre-allocated fair market value of certified aircraft is the
AB 384
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amount determined under the provided formula and, thus, either
the assessor or the taxpayer may challenge that amount before
an assessment appeals board.
4)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 will be made as required by the statute.
FISCAL EFFECT : According to the State Board of Equalization,
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.
COMMENTS : 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."
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 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."
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.
Committee staff notes all of the following.
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1)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 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].
2)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: a) acquisition cost; b)
price index; c) percent good factor; and, d) 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,
(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.
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3)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, 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.
4)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
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to set a fair market value where the facts presented clearly
overcome the presumption of correctness in any given
methodology.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0005161