Disaster Relief OKd for Airlines

In a surprise victory for the airline industry, a state tax panel said Thursday that airlines and other companies operating at California airports are entitled to seek lower state property taxes because of the Sept. 11 attacks.

The Board of Equalization rejected its staff’s advice and voted to issue a ruling allowing airlines and others to invoke the state’s disaster relief laws to obtain lower property values--and hence taxes--on grounds that the attacks crimped their businesses.

Normally the law applies to firms damaged by natural disasters such as earthquakes and fires. The board’s staff said airport tenants in California weren’t entitled to lower property values because the attacks occurred 3,000 miles away.

Most California assessors, who are the ones to actually determine property values in their counties, also argued that the law didn’t provide for the airlines and others to claim lower property values.

But the board noted that after Sept. 11, U.S. air travel was completely shut down for two days, with some airports closed longer. Also, ongoing security restrictions at many airports have reduced the value of businesses there, it said. For instance, concessionaires in airport terminals aren’t earning as much money because non-ticketed passengers can no longer walk past initial security checkpoints.

All those restrictions constitute the damage that’s required for companies to get tax breaks under the state law, said David Gau, deputy director of the board’s property tax division.

The board agreed with the position of Los Angeles County Assessor Rick Auerbach. The decision “provides an appropriate relief for the lessees of property at the airports,” Auerbach said after the board’s 4-0 vote, which directed its staff to come up with language for a ruling to be voted on within a few weeks.

But there’s still lots of confusion surrounding the issue. The airlines and other airport tenants must seek relief in each county where they operate, and “they need to make that case to the assessors,” said Larry Augusta, a lawyer for the Board of Equalization.

Although the board’s new rule, once adopted, serves as firm guidance for the assessors, they still can contest it in court.

“The board opened the window of opportunity for [the airlines and others] to prove they had some loss” in property value, Augusta said.

Thus, it’s unknown how much California eventually could lose in property taxes, though industry and government officials have estimated it could reach the tens of millions of dollars in the case of the airlines alone.

If the airport businesses at Los Angeles International Airport alone were granted the tax cut they want, they would see their combined California property tax bill cut by about $16 million for the tax year that ends next June 30, officials estimated.

The airlines pay taxes--typically 1% of the assessed property value--not only on their leased airport terminals, hangars and other property, but also on a portion of their jets based on a formula for how often the planes are in the state. The carriers say that the value of those jets has plunged since Sept. 11, because the airline industry has massively scaled back and grounded hundreds of aircraft.

The board stopped short of granting relief for many other firms, such as hotels, that aren’t on airport property. Those firms also had sought tax breaks by claiming they are suffering from the slump in travel.

The airlines, having been battered financially since Sept. 11, cheered the decision. “We certainly applaud the Board of Equalization for its bold leadership on this very critical issue,” said Roger Cohen, of the Air Transport Assn. in Washington.

“It sends a message nationwide that California recognizes the unique nature of Sept. 11 on the airline industry,” he said.

But some county assessors disputed the Board of Equalization’s stance. Larry Stone, assessor of Santa Clara County, said it’s very unclear what portion of an airport company’s loss of business is due to new security restrictions.