BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de Le�n, Chair


          AB 2262 (Frazier) - Private Railroad Car Tax 
          
          Amended: April 1, 2014          Policy Vote: G&F 7-0
          Urgency: No                     Mandate: No
          Hearing Date: June 30, 2014                             
          Consultant: Robert Ingenito     
          
          This bill meets the criteria for referral to the Suspense File.


          Bill Summary: AB 2262 would (1) change the tax calculation  
          methodology on private railroad cars (PRCs) from using calendar  
          days in the State to actual miles traveled, and (2) modify the  
          depreciation schedules used to assess the valuation of  
          individual PRC. 

          Fiscal Impact: 

                 The Board of Equalization (BOE) indicates that this  
               measure would result in a annual General Fund revenue loss  
               of $1.2 million. 

                 The bill would eliminate the agency's need to purchase  
               replacement software to maintain the current-law  
               calculation methodology. Thus, the bill would result in an  
               avoidance of this one-time cost of about $500,000.  
               Additionally, the bill would eliminate BOE's need to  
               continue the current $13,000 annual railroad car  
               registration subscription to verify the days that rail cars  
               are present in the State. 
          

          Background: Current law imposes a property tax on PRCs operating  
          on the State's railroads, and dictates specifies the methodology  
          to value them. BOE determines value based on acquisition cost  
          less depreciation for each railroad car class in the owner's  
          fleet; current law permits additional deductions in the form of  
          depreciation for cars purchased used and improvements to  
          existing cars.

          Because PRCs are involved in interstate travel, the value must  
          be apportioned among the states. PRCs are taxed on a  








          AB 2262 (Frazier)
          Page 1


          proportional basis consistent with actual presence in  
          California. Current law requires presence to be measured by 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 BOE. BOE software  
          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. However, as referenced  
          above, the software that BOE uses to measure "car-days" is  
          nearing the end of its useful life. 








































          AB 2262 (Frazier)
          Page 2


          Proposed Law:
                 The bill would modify the ratio used to calculate the  
               base of the Private Railroad Car Tax. Specifically, 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.

                 The bill would prohibit the car's age at acquisition  
               from being used to calculate depreciation, 

                 The bill would provide that improvements to the car  
               cannot be depreciated.
          

          Staff Comments: This bill could result in administrative  
          efficiency gains for both PRC owners and BOE. A mileage-based  
          system to calculate the Private Railroad Car Tax would conform  
          to the methodology used by all other states that impose such a  
          tax, making compliance easier for owners. BOE indicates that a  
          mileage-based system is less complex and costly overall for it  
          to administer.