COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Counsel

DATE:

July 11, 2007

BOARD MEETING DATE:

July 24, 2007

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

County Counsel

SUBJECT:

Correction of Property Tax Roll as to Airlines for Tax Year 2005

Recommendation:

Approve corrections to the 2005 tax roll, and corresponding tax refunds, to reflect implementation of Revenue and Taxation Code Section 401.17.

Vision Alignment:

Commitment: Responsive, effective, and collaborative government - compliance with statutory requirements.

Background

With the decline in air travel following the events of September 11, 2001, the domestic commercial airlines that operate aircraft within San Mateo County filed a series of appeals with the Assessment Appeals Board challenging the value of their aircraft that the County Tax Assessor enrolled. The Airlines’ appeals were based on an argument that additional obsolescence was caused by the events of September 11, 2001 and the conditions that followed, requiring significant reductions in the assessed values of the aircraft. This issue was being raised simultaneously throughout the State by 23 different Airlines in 24 different Counties.

Adopting an approach used in the past, the Assessors and Airlines began negotiations in an attempt to arrive at a consistent statewide resolution. As a result of over two years of negotiations, a settlement was reached which included among other things, an agreement that both sides would support new legislation to address the issue from 2004-05 forward (or at least until 2011). The proposed legislation was adopted as Revenue and Taxation Code Section 401.17 (Chaptered October 7, 2005; Chapter 699) and established new guidelines for the determination of the taxable value of certain aircraft. The County’s final calculations have been completed and all of the tax assessment appeals have otherwise been settled or withdrawn.

Discussion

The legislation effectively has a retroactive impact as it addresses assessments for tax year 2005 even though the assessments for that year had already been enrolled before the passage of the new law. The result is that several of the Airlines are entitled to re-valuations of their aircraft that result in tax roll corrections, and attendant tax refunds, in excess of $50,000 for their 2005 unsecured property taxes. Such roll corrections require Board of Supervisor’s approval. The Airlines and the roll correction amounts, together with the Controller’s Change Number, are as follows:

Airline

Change Number

Tax Roll Amount

Alaska Airlines

06-199

$ 106,044.68

America West Airlines

06-200

$ 74,357.10

American Airlines

06-201

$ 102,425.46

American Airlines

06-202

$ 106,006.70

ATA Airlines

06-203

$ 141,044.21

Continental Airlines

06-204

$ 103,511.33

Delta Airlines

06-205

$ 56,885.81

Skywest Airlines

06-206

$ 86,582.55

US Airways, Inc

06-207

$ 56,691.48

United Airlines

06-209

$ 425,411.65

United Airlines

06-210

$1,183,112.82

United Airlines

06-211

$ 167,442.17

The impact of the legislation and the settlement with the Airlines on property taxation revenues was estimated by the Assessor and the Controller last year. In anticipation of that impact, the Assessor and Controller met separately last summer with each of the three categories of taxing agencies that would be impacted by property tax refunds – School Districts, Cities, and Special Districts – to describe and explain that impact.

The roll corrections and refunds that are the subject of this action are a result of a change in the law and should not be confused with roll corrections and refunds that may result from taxpayer or Assessor, errors, miscalculations or incorrect entries.

Fiscal Impact

The total fiscal impact is a $2,609,515.96 decrease in the 2005 tax roll, and a corresponding property tax refund of the same amount.