Establishing a shortline railroad restoration tax credit, and including effective date and retroactive applicability provisions

Sponsored by the House Transportation Committee

Topics:Taxes Transportation Tax credits & incentives

Same legislation: SF 314, HSB 196, SF 630

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Where it is now

Done: IntroducedFebruary 19, 2019
Skipped: SubcommitteeSkipped
Done: House committeeApril 17, 2019
Stopped: Passes the HouseDied when the General Assembly ended
Next: Senate committee
Next: Passes the Senate
Next: To the Governor
Next: Signed into law

Died when the session ended The 2020 session adjourned on June 14, 2020, the General Assembly’s last regular session. Bills that didn’t pass both chambers died. What’s a funnel?

What’s in it

This bill establishes a shortline railroad restoration tax credit to be administered by the department of revenue for qualifying shortline railroad restoration projects. The bill defines “qualifying shortline railroad restoration project” to mean expenditures for maintenance, reconstruction, or replacement of shortline railroad infrastructure. The bill defines “railroad infrastructure” to include track, roadbed, bridges, industrial leads, and track-related structures owned or leased as of January 1, 2019.

Read the full explanation

329 (credit union taxation). To qualify for the tax credit under the bill, the taxpayer must be classified as a class II or class III railroad by the federal surface transportation board, and have a qualifying shortline railroad restoration project expenditure during the tax year. For a class III railroad, the amount of the tax credit shall not exceed the product of $7,000 multiplied by the number of miles of railroad track owned or leased within this state by the taxpayer at the close of the tax year when the qualifying shortline railroad restoration project expenditure occurred. For a class II railroad, the amount of the tax credit shall not exceed the product of $2,000 multiplied by the number of miles of railroad track owned or leased within the state by the taxpayer at the close of the tax year when the qualifying railroad project expenditure occurred. The amount of the tax credit shall equal percent of the total expense of the qualifying shortline railroad restoration project. The bill specifies that a qualifying shortline railroad restoration project expenditure is deemed to have occurred on the date the expenditure is incurred. The tax credit is not refundable, but any credit not used by the taxpayer may be carried forward for up to five years. However, a tax credit shall not be carried back to a tax year prior to the tax year in which the taxpayer first receives the tax credit. The bill allows the tax credit to be transferred to any individual or entity. The department of revenue is required to develop a system for the application, review, and authorization of tax credits awarded pursuant to the bill and shall control the issuance of all tax credit certificates. The bill takes effect upon enactment and applies retroactively to January 1, 2019, to tax years beginning on or after that date.

Full bill text¹

Fiscal note

Less revenue: up to $60,000 Compare with other bills

AI summary Senate File 630 creates a tax credit for certain railroads to help cover the costs of maintaining or replacing infrastructure like bridges. The bill has no immediate fiscal impact because the General Assembly must first set an annual limit on the credits before they can be claimed. However, it is estimated that earned tax credits will total $4.8 million in fiscal year 2020, $9.6 million in fiscal year 2021, and $11.4 million in fiscal year 2022 and after. The Department of Revenue expects $30,000 in annual administrative costs and a one-time cost of $240,000 to update its tracking system.²

Read the fiscal note

Description

Senate File 630 creates a new Shortline Railroad Restoration Tax Credit. The credit is available to Class II and Class III railroads (as classified by the Federal Surface Transportation Board) that incur qualified costs for maintenance, reconstruction, or replacement of railroad infrastructure, including bridges.

The credit is equal to 50.0% of qualifying expenditures. The total annual credits for a railroad may not be more than $2,000 for Class II railroads or $7,000 for Class III railroads, multiplied by the number of miles of railroad track owned or leased within the State. Expenditures funded by grants from a different agency, State or federal, are excluded from qualifying costs. The credit is not refundable, but any unused credit may be carried forward for up to five additional tax years. The tax credit is transferrable.

The new tax credit may not be claimed by a taxpayer until such time as the General Assembly specifies the cumulative value of Shortline Railroad Restoration Tax Credits that may be claimed annually by all taxpayers.

Assumptions

There are 12 Class III and two Class II railroads operating in Iowa. Total Class III mileage equals 1,360, and total Class II mileage equals 1,262. The mileage includes three railroads that are classified as either Class II or Class III but are owned by Class I railroads. The total miles for the three railroads is 1,666 miles. It is assumed that being owned by a Class I railroad will not preclude Class II and Class III railroads from utilizing the credit.
Department of Revenue rules will specify that qualifying expenditures must be related to track miles located in Iowa.
The average annual per-mile track maintenance cost is assumed to equal at least $14,000 per mile per year.
Based on the above three assumptions, the annual tax credit amount earned by the 14 eligible railroads is $12.0 million.
The tax credit redemption pattern is assumed to be similar to other transferable tax credits. The assumed redemption pattern is:
Year 1 = 40.0%
Year 2 = 40.0%
Year 3 = 15.0%
Expiring unredeemed = 5.0%
The new tax credit does not designate when the tax credit may first be earned. With an effective date of July 1, 2019, it is assumed that the first year a tax credit may be earned is 2019.
The Bill specifies that tax credits may not be claimed until the General Assembly has specified the cumulative value of tax credits that may be claimed annually by all taxpayers. That cumulative value is not specified in this Bill.

Fiscal Impact

The new Shortline Railroad Restoration Tax Credit does not have a fiscal impact because the contingent applicability provision of the Bill forbids tax credit claims under the program until such time as the General Assembly sets the program’s annual amount. However, tax credits may still be earned in anticipation of future action by the General Assembly. Based on the assumptions above, it is estimated that earned tax credits will total the following amounts:

FY 2020 = $4.8 million
FY 2021 = $9.6 million
FY 2022 and after = $11.4 million

The General Assembly will decide in different legislation if and how earned tax credits will become claimed tax credits. The fiscal impact will occur once earned tax credits are allowed to be claimed by the taxpayer.

The Department of Revenue estimates that the new tax credit will require $30,000 in annual administrative expenditures. In addition, one-time costs associated with adding the new credit to the Department’s tax credit tracking system will total $240,000.