The 45G tax credit is a “game changing policy has been responsible for more than $8 billion in investment to date,” ASLRRA President Chuck Baker said, “but outdated caps and limitations are threatening to erode its potency. Four leaders in Congress have acted, enabling updates to the credit that will serve the rail industry, shippers, and the economies of small towns across the country for years to come. We are immensely grateful for the bipartisan and bicameral leadership of Sens. [Ron] Wyden [D-Ore.] and [Mike] Crapo [R-Idaho] and Reps. [Mike] Kelly [R-Pa.] and [Earl] Blumenauer [D-Ore.].”
With bi-partisan support in the 116th Congress (302 co-sponsors in the House and 62 in the Senate), 45G was made permanent in 2020. It currently allows for a $0.40 tax credit for each dollar invested in upgrading rail and bridges, up to a cap of $3,500 per mile of rail. While it is widely considered “an effective and successful public policy,” according to ASLRRA, expenditures on rail that became short line track after 2015 are ineligible for the tax credit and, over time, the cost to rehabilitate a mile of track has increased significantly. ASLRRA reported that the new bills, S.5008 and H.R.9522, would amend the Internal Revenue Code of 1986 to make three changes to 45G:
- “First, they increase the maximum credit for qualifying track maintenance expenditures to $6,100 per track mile from $3,500. The $3,500 per track mile maximum has been in place since the tax credit was established in the American Jobs Creation Act of 2004.
- “Second, the bills include language that would adjust the tax credit for inflation in future years. In taxable years beginning after 2025, the maximum credit amount will be increased according to the cost-of-living adjustment determined for the calendar year in which the taxable year begins.
- “Third, the bills allow all short line-owned track miles to be eligible for the tax credit. Previously, only maintenance on track owned as of Jan. 1, 2015, qualified. Since then, many short lines have acquired additional track or started new operations. The language in 45G would be changed to include any track owned or leased as of Jan. 1, 2024.”
Chair of the Senate Finance Committee Ron Wyden and Senior Republican Mike Crapo introduced S. 5008, which has been referred to the Committee on Finance.
“Short line and regional railroads are an essential part of our infrastructure and a lifeline that connects small businesses with consumers in markets all over the country,” Sen. Wyden said. “Sen. Crapo and I worked for years to make the tax credit for these railroads permanent, and the next step is to improve it to meet the needs of our businesses and communities today. Our bipartisan legislation will deliver much-needed relief for short line and regional railroads to make vital upgrades that connect our rural communities, small towns, and urban centers to the marketplace.”
“Access to affordable and reliable options for transporting goods to markets is an important part of Idaho small businesses’ success and ability to grow and innovate,” Sen. Crapo added. “This legislation will modernize existing tax incentives that encourage and support investment in short line railroads, helping to improve short line railroads’ efficiency at moving Idaho goods to customers worldwide.”
The House version, H.R. 9522, was introduced by Reps. Kelly and Blumenauer and referred to the House Committee on Ways and Means. Kelly and Blumenauer are members of that Committee.
“Short line rail service connects communities and provides rail service in small towns nationwide, including stops throughout Western Pennsylvania,” said Rep. Kelly. “In some cases, short lines provide the only source for local companies to ship their products nationally. This legislation allows rail companies to continuing to provide safe and efficient service and provides a return on taxpayer investment.”
“Short line rail is absolutely critical for rural and small communities,” noted Rep. Blumenauer. “Modernizing the railroad track maintenance credit will help to invest in this critical infrastructure that extends opportunity to the furthest reaches of our communities.”
Further Reading: Forget H.R. 25, the Fair Tax Act. 45G Is What Counts
