Airlines are looking for a big tax break in California

Here’s something you may not know: The airliners that carry you into, out of, or within California are subject to state property tax from the moment they cross the state line until they leave.

In 2014, commercial airlines, along with cargo companies such as FedEx, paid roughly $80 million to 11 counties with major airports, based on calculations by county assessors that valued their fleets at more than $7.7 billion.

The airline industry is entitled to do what it can to pare down this bill. The rest of us are entitled to call them on their disingenuous complaining.

The airlines, which are currently enjoying record profits, say their issue with California’s aircraft property tax system is its complexity. What they really don’t like, however, is that it stands in the way of negotiating a big tax break.

Their scheme to overcome that obstacle has been rejected three times in Sacramento over more than a decade, but it appears to have acquired new life. If the airlines get their way, the revenue they pay to local governments could be cut by 30% to 70%. That means less money for schools, street repairs, police and other services.

The airlines’ preferred alternative, embodied in a measure introduced by state Sen. Jerry Hill (D-San Mateo), is to transfer the responsibility for aircraft appraisals from county assessors, who have been performing this duty for more than 15 years, to the state Board of Equalization, which has never done it.

The airlines say the current system is inefficient and “broken beyond repair,” to quote Vaughn Jennings, a spokesman for the industry group Airlines for America. While many states levy taxes on commercial aircraft, California is the only state with multiple major airports, other than Texas, that farms the job out to local assessors.

But county assessors say the airlines are just looking for a tax agency they can browbeat into giving them a tax cut, and the Board of Equalization fills the bill.

“This legislation has nothing to do with increased efficiency,” says Santa Clara County Assessor Lawrence E. Stone, whose jurisdiction covers San Jose International Airport. “It’s an attempt by the airlines to get a significant and unfair tax break not offered to any other businesses in California.” The state board “has zero expertise in appraising aircraft,” leaving it vulnerable to airlines’ manipulation, he says.

The assessors also fear that once property tax revenues disappear into the centralized black hole of Sacramento, it might be hard for counties to get the money back.

Hill, whose district includes part of Santa Clara County, says his measure aims to “streamline government operations,” not give the airlines a handout. “I don’t see it as a tax cut, or I wouldn’t be doing it,” he told me. His measure was approved April 22 by the Senate Governance and Finance Committee and sent to the Senate Appropriations Committee.

State legislators should take a closer look at the history of this idea and the threadbare evidence the airlines have offered in its favor — then they should kill it.

For decades, the airlines and assessors have been battling over valuations of aircraft, which are exempt from Proposition 13 and thus subject to annual reassessments. Efforts by the industry to shift the task to the Board of Equalization failed in 2003, 2004 and 2005.

The assessors haven’t been insensitive to the airlines’ complaints. In 2005 they designated one “lead county” to appraise the fleets of each firm. The lead county crunches the numbers for its assigned carriers — Los Angeles County handles American Airlines and FedEx, for example — and distributes its findings to the other counties, which calculate the time each plane spends within their borders and send out the bills.

The assessors also agreed to a 10% “economic obsolescence” discount tied to 9/11; it’s still in effect even though the industry’s recovery from that disaster and the recent recession is more than complete. This arrangement has been grandfathered to next Jan. 1, which is why the Legislature is getting involved again now.

Despite such forbearance, the airlines have never stopped grousing about California appraisals. American and United appealed their assessments for 2009, when travel turned sharply down because of the recession. They each sought an economic obsolescence reduction from L.A. County of 70% of their fleet values — a reduction in assessed value of $203 million for American and $79 million for United in Los Angeles alone, which would have resulted in tax refunds from L.A. of $2.4 million for American and about $1 million for United.

The county’s assessment appeals board pointed out that aircrafts’ market value, on which the assessments are based, don’t change when airlines’ profits shrink, and rejected both claims. The independent appeals board said each claim would lead to “an absurd consequence.” American has also sought economic obsolescence reductions totaling nearly 75% for 2010 and 2011, years in which it lost money although the industry staged an economic recovery. Both requests have been denied on appeal.

Some of the airlines’ arguments are highly misleading, at best. They complain that the current system leads to “millions of dollars in litigation costs,” says Jennings of Airlines for America. “In fact,” he told me by email, “there are currently 45 pending lawsuits relating to county assessors misapplying the applicable property tax statute.”

These “45 pending lawsuits” turn up repeatedly in statements supporting SB 661; Hill mentioned it to me and it’s cited twice in a white paper from the Board of Equalization supporting his bill. But the 44 lawsuits (not 45, Airlines for America concedes) actually have been coordinated into a single case. The lawsuits appear to be largely identical, filed in 12 counties by the same Los Angeles law firm on behalf of seven airlines. The cases all concern tax year 2009, and typically claim the same 70% reduction American and United sought from the L.A. assessor. Some of these claims already have been heard twice — first by the assessors’ office and then by county assessment appeals boards — and rejected twice.

Plainly, the reason the airlines are spending so much in “litigation costs” is that they’ve chosen to stretch out the appraisal process in court. Something seems just a teeny bit cynical about going for three bites of the same apple, and complaining about the taste.

There’s no reason to accept the airlines’ assertion that the appraisal process, which has served the state well, is somehow unworkable. By changing the process now, the state Legislature would only be fixing something that isn’t broken.

Michael Hiltzik’s column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at [email protected], check out facebook.com/hiltzik and follow @hiltzikm on Twitter.