Kansas creates short-line tax credit program
4/25/2022
By Jeff Stagl, Managing Editor
Add Kansas to the list of states that provide tax credits to regionals and short lines for help with funding infrastructure improvements.
On April 14, Gov. Laura Kelly signed a bill into law that in part enacted a tax credit program, making Kansas the seventh state to offer Class II and III railroads such funding assistance.
Regionals and short lines now will be able to claim a tax credit equal to 50% of their eligible track maintenance expenditures — capped at $5,000 per track mile — in tax years 2022 through 2031.
Based on the 1,700 miles of Class II and III track in Kansas, the new program is estimated to provide about $8.72 million in tax credits for the 10-year period.
Pioneer Lines’ Garden City Western Railway spans 250 miles from west of Wichita to Overland Park, Kansas. The short line interchanges with BNSF in Garden City, Kansas. Pioneer LinesRegionals and short lines help support the state’s farmers and agriculture industry, and better connect Kansas-grown grain to the broader Class I network for delivery to regional, national and international markets, Kelly said last year when announcing grant awards through the state’s Short Line Rail Improvement Fund Program.
The tax credit program enables small railroads and other eligible entities to carry over any unused credits for up to five years. Eligible entities include Class II or III railroads or railroad-related property, facilities or structures located wholly or partly in Kansas; or a business that uses Class II or III railroads or railroad-related property, facilities or structures in the state.
Qualified expenditures include the cost of maintaining, reconstructing or replacing track — including roadbed, bridges, industrial leads and side tracks, or related structures — owned or leased by an eligible taxpayer as of Jan. 1, 2022.
The state retains the right to adopt rules and regulations necessary to verify eligibility and administer the credits.
Kansas short lines helped champion the effort to create the tax credit program with assistance from Mickelson and Co. LLC, according to the American Short Line and Regional Railroad Association (ASLRRA). A professional services firm, Mickelson is staffed with a certified public accountant, certified valuation analyst and an attorney.
Alabama, Arkansas, Georgia, Kentucky, Oklahoma and Oregon offer similar short-line tax credit programs.
The South Kansas & Oklahoma Railroad operates 433 miles of track in Kansas and Oklahoma. Watco launched the regional in 1987. Watco “These credits, which can generally be thought of as state versions of the federal 45G tax credit, are highly effective public-private partnerships that create demonstrable results,” said ASLRRA President Chuck Baker in an email. “The enactment of [this latest] state tax credit is a huge win for the short lines in Kansas, their customers and the communities they serve.”
Short lines serve as critical connection points for 10,000 companies that drive economic growth and value in every state they operate in, he said. When freight rail is a viable option, it’s often the tipping point for companies to locate in a particular area, Baker added.
ASLRRA officials are hopeful that one or two more states pass similar laws this year, and that every state will seriously consider implementing a short-line tax credit program.
“Tax credits enable small business, privately held freight railroads to upgrade service, increase safety and implement projects that will continue to make rail the environmentally friendly choice for surface transportation,” Baker said.
