Fiscal Cliff legislation restores tax credit for short line rail infrastructure

By Bill Holloway

The legislation signed by President Obama on January 2nd to avert the tax increases scheduled to take effect as a result of the “fiscal cliff” included a two-year extension of the Section 45G tax credit for short line railroads to improve their infrastructure. Under the provision, short line and regional railroads are allowed to claim a tax credit for 50 percent of the cost of infrastructure improvements, up to $3,500 per mile. As the credit had lapsed in January 2012, the extension is retroactive covering all of 2012 and 2013.

The tax credit extension has been opposed by some as an unnecessary corporate giveaway, but supporters cite economic development and environmental benefits to building rail infrastructure. In addition, boosting rail reduces stress on publicly funded highways—on which much of the freight carried by rail would otherwise travel.

Individual states have experimented with other ways to support their rail networks, ranging from public ownership and operation, to grants and loans. Focus Area 6 of The Innovative DOT, a handbook released jointly by SSTI and Smart Growth America in 2012, provides additional information and case studies about state rail service support efforts.

Bill Holloway is a Transportation Policy Analyst at SSTI.