Tax credits are dollar-for-dollar reductions in tax liability. For C Corporations, they serve to reduce the company’s liability. For Pass Through Entities (S corporations, partnerships, LLCs, and Schedule C unincorporated entities), tax credits are passed directly to the partners, shareholders, or owners.
Affecting Class 2 and Class 3, the Research and Development Credit (R & D Credit) can be used where new methods are developed to accomplish certain results. The requirements are easier for taxpayers with gross receipts. If and when the Section 45 Tax Credit for maintenance expenditures is reinstated I can help you apply for it.
Tax Credits and Railroads
Tax credits are meant to encourage certain activities. However, they often exist on a year-to-year basis because they do reduce the government’s tax revenue. Currently, the shortline railroad industry is waiting for the Section 45 credit to be restored.
There are also state and local development credits, which can be very helpful to the taxpayer. Michigan provides a useful credit where railway development—provided it does not interfere with high speed passenger service—can get a subsidy/grant.
Also helpful to railroads are public/private partnerships that leverage public and private funds, which can include grants or subsidies. These partnerships are used to carry out specific projects where there is a significant element of public benefit. An example is the White River Bridge replacement on the Indiana Railroad in Indiana. The century-old bridge was a roadblock (literally) that was replaced by a modern structure that allows the railroad to haul heavier and wider loads. Most Class 2s and Class 3s have been branchlines where investment in infrastructure has been minimal. A P3 can be helpful in increasing capacity on these old lines.