The regional and short line railroad investment tax credit (known as 45-G for its provision in the Internal Revenue Code) is poised to be signed into law by President Trump following its unexpected insertion into the massive two-year Bipartisan Budget Act of 2018 passed in the predawn hours Friday, Feb. 9, by the House and Senate.
The investment tax credit extension provision was inserted in the budget bill late Wednesday, Feb. 7.
This was a testament to its congressional popularity, as neither the language nor rationale for the extension had been presented to a House or Senate oversight committee for public hearing and consideration—generally the process before legislation reaches the respective congressional chamber for a vote.
While regional and short line railroads were hopeful of permanency for the 45-G investment tax credit, they surely will settle—at least for now—for the one-year extension.
The 45-G provision was first enacted by Congress in 2005—a lobbying effort superintended by the American Short Line and Regional Railroad Association and led by consultant Keith Hartwell, now retired in his native Michigan, but likely a White House nominee to one of three currently vacant seats on the Surface Transportation Board.
Still pending in the House is H.R. 721, the Building Rail Access for Customers and the Economy (BRACE) Act, which awaits a hearing in the House Ways & Means Committee.
It would provide a permanent extension of the 45-G investment tax credit, and quickly gained 250 co-sponsors following its Jan. 30 introduction by Rep. Lynn Jenkins (R-Kans.). That permanent extension still can be sought, although it is less likely this congressional session, given the one-year extension provided in the budget bill.
The two-year extension inserted in the budget bill—typical of previous extensions—matches the intent of S. 2256, the Tax Extender Act, introduced in the Senate Dec. 20, 2017 by Orrin Hatch (R-Utah).
With five co-sponsors, it awaits a hearing before the Senate Finance Committee. That bill now will be pulled from consideration, as its outcome was achieved by the budget bill’s passage.
Some 600 regional and short line (Class II and III) railroads—small businesses representing almost 30% of rail mileage, most created as an alternative to abandonment of light-density lines by major railroads—depend on the investment tax credit for affordable rail infrastructure upgrades and new equipment purchases.
The 45-G provision has facilitated some $4 billion in private-sector capital investments by small railroads that otherwise would have been unaffordable.
The 50% investment tax credit is capped at $3,500 per track-mile.
Unlike tax rate reductions as provided by the recently enacted Tax Cuts and Jobs Act of 2017, the 45-G credits can be sold for use by others—if not needed by the eligible small railroad—making them especially valuable to small railroads with lower effective tax rates than the new tax act’s lower statutory rates.
“The 45-G extension benefits the 10,000 short line railroad shippers across the country,” said Linda Bauer Darr, president, ASLRRA. “The continuation of this credit is good public policy, allowing our industry to do its share toward improving the nation’s infrastructure by incentivizing railroads to increase their capital investment. The extension will allow short lines to continue their success story serving rural, industrial and agricultural America.”
For those seeking details, the 45-G investment tax credit extension—retroactive to Jan. 1, 2017, and extending through Dec. 31, 2017—is found in Section 40302 of the Bipartisan Budget Act of 2018.