Railroads and the tax code: Short lines, transit agencies welcome tax benefit extensions

by Julie Sneider, Assistant Editor

Short-line and transit agency officials let out a sigh of relief last month when President Obama signed the Middle Class Tax Relief Act of 2010, which extended the short-line tax credit for 2010 and 2011, as well as two public transportation tax provisions.

Although the American Short Line and Regional Railroad Association (ASLRRA) initially lobbied for an extension through 2012, the measure signed on Dec. 17 extends Section 45G of the U.S. tax code for tax years 2010 and 2011. Still, the association is "very, very happy" with the extension, says Keith Hartwell, a lobbyist for ASLRRA.

"We anticipated an extension only for 2010 — that's what they had been telling us all year long," he says. "This is a tremendous victory for the short-line rail industry."

Section 45G enables regionals and short lines to claim a tax credit of 50 cents for every dollar spent on infrastructure improvements — such as tie replacements, bridge repairs and track surfacing — up to a cap of $3,500 per mile of owned or leased track.

Playing a Waiting Game

Initially enacted in January 2005, the tax credit first expired at the end of 2007; since then, ASLRRA had lobbied for extensions year to year with the latest expiring on Dec. 31, 2009. The annual waiting game on the extensions makes it a challenge for railroads to plan rehabilitation projects, Hartwell says.

Some railroads postponed improvements last year until they had a better sense of whether the tax credit would be extended.

"What this [two-year] extension means for the short-line industry is that there are a lot of rehabilitation projects that we can now do that we wouldn't do otherwise, or that we would do but now we can accelerate them," says Hartwell.

An ASLRRA priority in the new Congress will be to try to extend the tax credit several more years as part of a long-term reauthorization of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users (SAFETEA-LU).

The association could start collecting co-sponsors' signatures for a reauthorization measure as soon as the new Congress convened in January, Hartwell said in late December.

Meanwhile, incoming House Transportation and Infrastructure Chairman John Mica (R-Fla.) has indicated that the drafting of legislation calling for a long-term authorization of SAFETEA-LU will be "a top priority when Congress returns in January," according to an American Public Transportation Association (APTA) legislative alert issued on Dec. 22.

APTA officials also welcomed the Middle Class Tax Relief Act, which extended the transit commuter benefit level at $230 a month through Jan. 1, 2012. At that level, the benefit is equal to the pretax deduction that drivers can apply toward monthly parking costs.

Had the extension not been included, the cap would have reverted back to its previous level of $120 per month on Jan. 1, "effectively raising taxes on employers and transit riders," according to the APTA alert.

"It's all about fairness," says APTA spokesperson Virginia Miller. "If drivers are given a benefit of up to $230 a month, so should people who take public transportation to work."

APTA "definitely will work with the new Congress and do everything we can to see that the public transit benefit becomes permanent," she adds.

The benefit extension enables more than 850,000 U.S. commuters to save as much as $1,000 in annual transit costs, according to officials at the TransitCenter Inc., a nonprofit provider of commuter benefit programs.

"With over a third of companies across the country offering the benefit, accounting for 52 percent of employees, the extension is a clear indication that the transit commuter benefit offers real savings to commuters and employers nationwide," which encourages more people to use public transportation, said Daniel Neuburger, TransitCenter president and chief executive officer, in a prepared statement.