BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2262 HEARING: 6/18/14
AUTHOR: Frazier FISCAL: Yes
VERSION: 4/1/14 TAX LEVY: No
CONSULTANT: Grinnell
PRIVATE RAILROAD CAR TAX
Changes the method for assessing the private railroad car
tax.
Background and Existing Law
Section One of Article XIII of the California Constitution
provides that all property is taxable unless explicitly
exempted by the Constitution or federal law. Section 19
requires the Board of Equalization (BOE) to assess property
owned by regulated railroads, except franchises, to the
same extent and in the same manner as other property.
While BOE assesses railroads for property tax purposes and
remits revenue to local agencies, owners of private rail
cars that aren't owned by railroads pay the "Private
Railroad Car Tax," similar to the Vehicle License Fee
because both are in-lieu of the property tax. The Private
Railroad Car Tax is the only property tax that flows to the
state's General Fund, where it supplies approximately $8
million annually.
The base of the tax is the owner's acquisition cost of the
cars within a class, minus depreciation at a maximum of 80%
over 22 years for most cars in specified categories, 25
years for those that don't fit a specific category, plus
depreciation for improvements the owner makes to the cars.
The value of the car is then multiplied by the average days
it's physically present in the state in the last calendar
year. California's average car day measurement is unique
among states. BOE can't consider car mileage, car days, or
other information about the cars when they aren't in
revenue service, or being repaired. The base is then
multiplied by the rate of the tax, equal to the average
property tax rate in the state, to calculate the tax.
Currently, BOE's computer system for calculating the
AB 2262 - 4/1/14 -- Page 2
car-day count method for assessing the tax is nearing the
end of its useful life, and would need to procure new
software to continue to measure the tax under the current
method. BOE and the private railroad car industry want to
change the method for measuring the tax to account for the
miles travelled for each car instead of accounting for the
average number of days that class of rail cars owned by the
taxpayer is in service in California.
Proposed Law
Assembly Bill 2262 changes the base of the Private Railroad
Car Tax in two ways:
First, the bill changes the ratio used to calculate
the base of the tax. Instead of multiplying the
adjusted value of the car by the ratio of the amount
of days in service in California over the total days
in service, the bill changes the ratio to the mileage
in the state over total mileage.
Second, AB 2262 prohibits the car's age at
acquisition from being used to calculate depreciation,
Lastly, the measure provides that improvements to
the car can't be depreciated.
The measure also makes conforming changes to the law.
State Revenue Impact
According to BOE, AB 2262 results in revenue losses between
$1.16 and $1.2 million annually.
Comments
1. Purpose of the bill . According to the author, "AB 2262
modernizes the way property tax is calculated on privately
owned railcars operating on the railroads in the state.
Unlike 49 other states, California requires the BOE to
determine the taxable value for each railcar class in the
owner's fleet based on the acquisition cost and time,
measured in the number of "car days" each car class spent
in the state during the preceding calendar year. Each
month, five railroad car companies report border crossing
data (movements in and out of California) to the BOE. A
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car-day count computer program processes this data and
determines the number of days each car was physically
present in California during the calendar year immediately
preceding each lien date. The car-day count software
program is near the end of its useful life. Switching to a
mileage-based system would avoid the cost to replace the
software, which BOE staff estimates would cost at least
$500,000 and bring California in line with every other
state that taxes private railcars. Under current practices
in the industry, mileage data is already captured as
railroad companies currently use mileage to bill private
railcar owners traveling on their systems. Switching to
mileage reduces the compliance burden on private railcar
owners and railroads to comply with California's unique
car-day system. As such, the resulting system will be less
complicated and less costly for the BOE to administer and
will reduce compliance costs for the industry. Further,
streamlining the administration of this tax allows BOE to
assign more senior staff to other duties."
2. Free ride ? AB 2262 simplifies the method for assessing
the private railroad car tax, as BOE would need to only
verify the mileage any car travelled instead of a measuring
the average days a class of cars spending in service in the
state. Additionally, the bill would delete BOE's need to
replace old information technology, thereby creating
savings for the state. However, while changing from one
method to another may shift the burden between taxpayers in
the private rail car industry; the bill enacts an aggregate
$1 million tax cut. Instead, the measure could include an
assessment factor or other provision that ensures that the
state doesn't lose any revenue as a result of the method
change. The Committee may wish to consider whether the
change in the method of assessing the private railroad car
tax should result in a net revenue loss.
3. Technical . BOE and Committee staff suggest deleting
Revenue and Taxation Code �11292 subdivision (g) to ensure
that improvements are valued according to the change made
at the beginning of that section.
Assembly Actions
Assembly Floor 75-0
Assembly Appropriations 16-0
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Assembly Revenue and Taxation 8-0
Support and Opposition (06/12/14)
Support : BNSF Railroad; Board of Equalization; Board of
Equalization Member George Runner; California Association
of Port Authorities; California Railroad Industry;
California Short Line Railway Association; Railway Supply
Institute; Union Pacific Railroad,
Opposition : None received.