BILL ANALYSIS �
AB 2262
Page 1
Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2262 (Frazier) - As Amended: April 1, 2014
Policy Committee: Revenue &
Taxation Vote: 8-1
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill changes the method of calculating the property tax on
private railroad cars (PRRCs) from calendar days in California
to miles traveled, values the PRRCs based on the owners'
acquisition costs, including additions and improvements, and
eliminates the accelerated depreciation provided to owners who
purchase used PRRCs.
FISCAL EFFECT
1)Potentially significant impact to the Board of Equalization's
(BOE) administrative costs, more than offset by cancelling its
$13,000 annual current railroad car registration subscription
and avoiding the cost to replace current car-day counting
software, which the BOE estimates would cost approximately
$500,000.
2)Decrease in revenue of between $1.16 million and $1.20 million
from switching to miles travelled basis for computing tax.
COMMENTS
1) Purpose. According to the author, this bill converts the way
physical presence of PRRCs is measured from the days spent in
California to the miles traveled in California. The author
claims a mileage-based system is less complex and less
expensive for car owners to administer and conforms to the way
other states that impose PPRC tax measure presence. The
bill's sponsor, the BOE, claims a mileage-based system is less
costly for it to administer and will result in avoiding a
one-time cost of approximately $500,000 to replace its aging
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car-day counting software.
2) Car Days vs Miles Traveled. Proponents for a mileage-based
system argue that switching to miles traveled is a better
measure of a PRRC's value because the economic benefit of the
rail car is derived from the movement of cargo from one
location to another. Under California's current car days
taxation system, a PRRC is taxed while standing idle awaiting
cargo onload or offload. The economic argument in favor of a
mileage-based system assumes value is gained only while the
rail car is traveling, and does not account for any value
gained while the rail car is being loaded or unloaded. That
argument is less persuasive in a terminal state like
California, where rail cars are frequently left idle waiting
to load and unload cargo.
3) Changes to Valuation and Depreciation. Current law prescribes
six different classes of PRRCs for purposes of valuation,
which forms the basis of the assessed tax. This bill would
reduce that to two classes; one with a 22-year and one with a
25-year depreciation life.
This bill modifies the depreciation schedule for used PRRCs.
Under current law, a purchaser of a used PRRC may continue
with the depreciation schedule that runs from the day the car
was built. For example, the purchaser of a 10-year-old car
with a depreciation life of 22 years may depreciate the
purchase price over the remaining 12 years. This bill
eliminates the accelerated depreciation for used PRRCs and
instead requires that they be depreciated in the same manner
as new PRRCs.
The bill also modifies the depreciation schedule for additions
and improvements to PRRCs. Current law allows an owner that
makes an improvement to a PRRC to depreciate the value of that
improvement as if it were part of the PRRC when the car was
first built. For example, an owner that installs a
refrigeration system on an 11-year-old PRRC with a 22-year
depreciation life may immediately depreciate half the value of
the refrigeration system. This bill requires PRRC owners to
depreciate additions and improvements on a straight line basis
over the remaining depreciable life of the car.
4) Administrative Benefits. According to supporters and the
sponsor, this bill will result in significant administrative
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efficiency gains and savings for both PRRC owners and the BOE.
A mileage-based system conforms to the manner in which the
rest of North America imposes PRRC taxes, making compliance
easier for owners. The BOE asserts a mileage-based system is
less complex and less costly overall for it to administer, and
will eliminate the need to continue the current $13,000 annual
railroad car registration subscription to verify the days rail
cars are present.
The reduction in car classes for valuation purposes and the
changes to the depreciation methodology will also result in
administrative benefits by reducing the amount of reporting
required from PRRC owners from 500 lines of data to a maximum
of 38 lines of data, and will conform that data to the type
PRRC owners already report to other tax authorities.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081