Several of the largest U.S. airlines, including American Airlines, United Airlines, Southwest Airlines and Airtran Airways, filed suit in the California Superior Court for Los Angeles County May 30 seeking over $7 million in property tax refunds for aircraft temporarily located at Los Angeles International Airport, Burbank Bob Hope Airport and Long Beach International Airport for the 2009 tax year. The dispute stemmed from how the airlines and the assessorscalculated economic obsolescence deductions.
Southwest and American alone seek refunds of $3.226 and $2.416 million, respectively, according to court documents on Bloomberg Law (available to subscribers).
In California, aircraft are valued based on the entire fleet rather than any individual airplane because of the transitory nature of air travel. A fleet’s value is apportioned to the state based on how long it has situs in the state, and is then further allocated within California by county. Fleets are valued at the lesser of market value as listed in a specified price guide, or by the original cost of the aircraft minus depreciation, which includes a mandatory deduction for economic obsolescence.
Economic obsolescence is the loss in utility and value caused by external influences separate from the property itself. For example, changes in regulatory requirements or low demand are examples of economic obsolescence.
The airlines claim that the Los Angeles and San Diego county assessors determined the proper valuation under the first part, using the specified pricing guide, but failed to follow the statutorily required procedures for calculating economic obsolescence under the second test. The economic obsolescence factors for airline fleet valuation in California include several detailed, airline-specific figures, such as annual net revenue per available seat mile, passenger load factor, and average revenue per revenue passenger mile.
The airlines argue that the L.A. County assessor misapplied these factors, consequently calculating a 0 percent obsolescence factor rather than 70 percent, the amount calculated by the airlines themselves. Because of this miscalculation, the airlines asserted that their fleets were taxed based on a value three times what it should have been.
The assessors have 30 days from the date they were served to file an answer.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Do you think we will see more challenges of property taxes by airlines in other states?
Sign up for a free trial of the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.
Follow us on Twitter: @BBNAtax
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)