Senate Bill 5494 — Government Incentives for Improving Freight Railroad Infrastructure (Washington, 2023)

Summary

Senate Bill 5494 of the State of Washington, 68th Legislature, 2023 Regular Session, by Senators including Kuderer, King, Lovick and Dozier. It was read first time 01/20/23 and referred to the Committee on Business, Financial Services, Gaming & Trade. The act relates to government incentives for improving freight railroad infrastructure, adds new sections to chapters 82.04, 82.08, 82.12 and 82.16 RCW, creates new sections and provides an effective date and expiration dates. Section 2 states that chapter 82.04 does not apply to the value of products or the gross receipts of sales derived by class I railroads for materials required for track maintenance, and the last section states that the act takes effect January 1, 2024.

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Full text

     S-0515.1

                               SENATE BILL 5494


     State of Washington       68th Legislature         2023 Regular Session

     By Senators J. Wilson, Kuderer, King, Lovick, Dozier, L. Wilson,
     Liias, Schoesler, Warnick, and Holy

     Read first time 01/20/23.       Referred   to   Committee   on   Business,
     Financial Services, Gaming & Trade.




1        AN ACT Relating to government incentives for improving freight
2    railroad infrastructure; adding new sections to chapter 82.04 RCW;
3    adding a new section to chapter 82.08 RCW; adding a new section to
4    chapter 82.12 RCW; adding new sections to chapter 82.16 RCW; creating
5    new sections; providing an effective date; and providing expiration
6    dates.


7    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 8       NEW SECTION. Sec. 1. The legislature finds that railroads play
 9   a crucial role in economic development, serving nearly every
10   industrial,   wholesale,   retail,  and   resource-based  sector   in
11   Washington's economy. The legislature further finds that freight
12   railroad infrastructure is an essential link in the supply chain and
13   provides an efficient way to connect Washington's economy to national
14   and international markets. The legislature further finds that
15   maintenance and improvements to the railroad system are needed to
16   support modern 286,000 pound railcars, foster economic development,
17   increase infrastructure resiliency, avoid supply chain disturbances,
18   and meet carbon reduction goals for transportation greenhouse gases.
19   The legislature intends to provide incentives to the rail industry
20   that can lead to a more effective short line rail system.


                                     p. 1                               SB 5494
 1       NEW SECTION.   Sec. 2.   A new section is added to chapter 82.04
 2   RCW to read as follows:
 3       (1) This chapter does not apply to the value of products or the
 4   gross receipts of sales derived by class I railroads for materials
 5   required for track maintenance.
 6       (2) For the purposes of this section, the following definitions
 7   apply.
 8       (a) "Class I railroad" means a railroad that is classified by the
 9   United States surface transportation board as a class I railroad, as
10   defined in 49 C.F.R. Sec. 1201.1-1(a), as in effect January 1, 2023.
11       (b) "Materials required for track maintenance" has the same
12   meaning as in section 5 of this act.
13       (3) This section expires June 30, 2034.


14       NEW SECTION.    Sec. 3.  A new section is added to chapter 82.04
15   RCW to read as follows:
16       (1) A credit is allowed against taxes due under this chapter of
17   expenditures made by an eligible taxpayer pursuant to subsection (2)
18   of this section.
19       (2) Qualified expenditures incurred by an eligible taxpayer may
20   be used to generate a credit for the following amounts:
21       (a) For qualified short line railroad maintenance expenditures, a
22   credit is allowed against the taxes due under this chapter in an
23   amount equal to 50 percent of the qualified short line railroad
24   maintenance expenditures. The amount of the credit may not exceed an
25   amount equal to $5,000 multiplied by the number of miles of railroad
26   track owned or leased in the state by the eligible taxpayer as of the
27   close of the taxable year.
28       (b) For qualified new rail development expenditures, a credit is
29   allowed against the taxes due under this chapter in an amount equal
30   to 100 percent of the new rail development expenditures of an
31   eligible taxpayer. The amount of the credit for new rail development
32   expenditures may not exceed $2,000,000 for each new rail development
33   project of an eligible taxpayer.
34       (c) For qualified railroad modernization and rehabilitation
35   expenditures, a credit is allowed against the taxes due under this
36   chapter in an amount equal to 100 percent of the qualified railroad
37   modernization   and   rehabilitation  expenditures   by  an  eligible
38   taxpayer.


                                     p. 2                          SB 5494
 1       (3) The credit claimed may not exceed the tax that would
 2   otherwise be due under this chapter. Refunds may not be granted in
 3   the place of credits. Expenditures not used to earn a credit in one
 4   fiscal year may be carried forward for no more than five years
 5   immediately following the year that the credit was allowed.
 6       (4) An eligible taxpayer may assign distribution of all or a
 7   portion of the allowed credit or an unused portion of the credit by
 8   written agreement to any taxpayer subject to the tax imposed under
 9   this section at any time during the year in which the credit is
10   earned   and  the   years  following   the  year   of  the   qualified
11   expenditures. The taxpayer originally allowed the credit and the
12   subsequent transferee shall jointly file a copy of the written credit
13   transfer agreement with the department. The agreement shall include
14   the names, addresses, and taxpayer identification numbers of the
15   parties to the transfer, the amount of the credit being transferred,
16   the year the credit was originally allowed to the transferring
17   taxpayer, and the tax year or years for which the credit may be
18   claimed.
19       (5) The department shall administer the credit. The department
20   shall provide a simple credit application form that the department
21   shall post on its website.
22       (6) No new credits may be issued after June 30, 2034, except
23   credits that are being carried forward from prior years may be
24   applied in accordance with subsection (3) of this section.
25       (7) For the purposes of this section, the following definitions
26   apply:
27       (a) "Eligible taxpayer" means:
28       (i) Any railroad subject to the tax under this chapter that is
29   classified by the United States surface transportation board as a
30   class II or class III railroad, as defined in 49 C.F.R. Sec.
31   1201.1-1(a), as in effect January 1, 2023;
32       (ii) Any railroad owned by a port, city, or county in the state
33   of Washington; or
34       (iii) Any owner or lessee of rail siding, industrial spur, or
35   industry track located on or adjacent to a class II or class III
36   railroad in the state of Washington.
37       (b)   "Qualified   new  rail   development   expenditures"   means
38   expenditures for new rail development by an eligible taxpayer, which
39   includes the construction of new track, industrial leads, switches,
40   spurs, sidings, rail loading docks, and transloading structures
                                     p. 3                          SB 5494
 1   involved with providing rail services to new customer locations or
 2   existing customer expansions in the state by an eligible taxpayer.
 3       (c)   "Qualified   railroad   modernization   and   rehabilitation
 4   expenditures" means expenditures by an eligible taxpayer to upgrade
 5   less than 90 pound rail and switches, 286,000 capacity rail upgrades
 6   to the mainline track, major rail and tie replacement projects, track
 7   capacity enhancements, bridge rehabilitation or bridge replacement
 8   projects, or other track-related projects determined to enhance or
 9   modernize the existing track infrastructure in the state by an
10   eligible taxpayer.
11       (d) "Qualified short line railroad maintenance expenditures"
12   means expenditures for railroad infrastructure including, but not
13   limited to, rail, ties, tie plates, joint bars, fasteners, switches,
14   ballast, subgrade, roadbed, bridges, industrial leads, sidings,
15   signs, safety barriers, crossing signals and gates, and related track
16   structures owned or leased by a class II or class III railroad.
17       (8) This section expires June 30, 2039.


18       NEW SECTION.   Sec. 4.   A new section is added to chapter 82.04
19   RCW to read as follows:
20       (1) Any owner or operator of a class I railroad, or owner of a
21   company that recycles railroad material, is eligible for an exemption
22   from the tax under this chapter in the form of a credit as provided
23   in this section if:
24       (a) The class I railroad transfers to an eligible taxpayer
25   railroad rail, ties, tie plates, joint bars, fasteners, switches,
26   ballast, or other equipment or materials that are part of the rail
27   infrastructure it has removed from use on the main railroad line to
28   be installed on tracks used by class II and class III railroads; or
29       (b) The owner of a company that recycles railroad materials
30   transfers to an eligible taxpayer rail, ties, fasteners, switches,
31   ballast, or other equipment or materials that are part of the rail
32   infrastructure to be installed on tracks used by class II and class
33   III railroads.
34       (2) The credit is equal to the fair market value of the donated
35   materials used for track maintenance, expansion, or modernization.
36       (3) An owner or operator of a class I railroad, or owner of a
37   company that recycles railroad material, may assign distribution of
38   all or a portion of the allowed credit or an unused portion of the
39   credit by written agreement to any taxpayer subject to the tax
                                     p. 4                          SB 5494
 1   imposed under this section at any time during the year in which the
 2   credit is earned and the years following the year of the qualified
 3   expenditures. The taxpayer originally allowed the credit and the
 4   subsequent transferee shall jointly file a copy of the written credit
 5   transfer agreement with the department. The agreement shall include
 6   the names, addresses, and taxpayer identification numbers of the
 7   parties to the transfer, the amount of the credit being transferred,
 8   the year the credit was originally allowed to the transferring
 9   taxpayer, and the tax year or years for which the credit may be
10   claimed.
11       (4) The department shall administer the credit. The department
12   shall provide a simple credit application form that the department
13   shall post on its website.
14       (5) No new credits may be issued after June 30, 2034, except
15   credits that are being carried forward from prior years may be
16   applied in accordance with subsection (2) of this section.
17       (6) For purposes of this section, "eligible taxpayer" means:
18       (a) Any railroad subject to the tax under this chapter that is
19   classified by the United States surface transportation board as a
20   class II or class III railroad, as defined in 49 C.F.R. Sec.
21   1201.1-1(a), as in effect January 1, 2023;
22       (b) Any railroad owned by a port, city, or county in the state of
23   Washington; or
24       (c) Any owner or lessee of rail siding, industrial spur, or
25   industry track located on or adjacent to a class II or class III
26   railroad in the state of Washington.
27       (7) This section expires June 30, 2039.

28       NEW SECTION.   Sec. 5.   A new section is added to chapter 82.08
29   RCW to read as follows:
30       (1) The tax levied by RCW 82.08.020 does not apply to sales of
31   materials required for track maintenance to:
32       (a) Owners and operators of class II or class III railroad
33   operators;
34       (b) Any railroad owned by a port, city, or county in the state of
35   Washington; or
36       (c) Any owner or lessee of a rail siding, industrial spur, or
37   industry track located on or adjacent to a class II or class III
38   railroad in the state of Washington.


                                     p. 5                          SB 5494
 1       (2) For the purposes of this section, the following definitions
 2   apply.
 3       (a) "Class II or class III railroad" means railroads that are
 4   classified by the United States surface transportation board as a
 5   class II or class III railroad, as defined in 49 C.F.R. Sec.
 6   1201.1-1(a), as in effect January 1, 2023.
 7       (b) "Materials required for track maintenance" means rail, ties,
 8   tie plates, joint bars, fasteners, switches, ballast, subgrade,
 9   roadbed, bridges, industrial leads, sidings, signs, safety barriers,
10   crossing signals and gates, and track.
11       (3) This section expires June 30, 2034.

12       NEW SECTION.   Sec. 6.   A new section is added to chapter 82.12
13   RCW to read as follows:
14       (1) The provisions of this chapter do not apply with respect to
15   materials required for track maintenance to:
16       (a) Owners and operators of class II or class III railroad
17   operators;
18       (b) Any railroad owned by a port, city, or county in the state of
19   Washington; or
20       (c) Any owner or lessee of a rail siding, industrial spur, or
21   industry track located on or adjacent to a class II or class III
22   railroad in the state of Washington.
23       (2) For purposes of this section, the following definitions
24   apply.
25       (a) "Class II or class III railroad" means railroads that are
26   classified by the United States surface transportation board as a
27   class II or class III railroad, as defined in 49 C.F.R. Sec.
28   1201.1-1(a), as in effect January 1, 2023.
29       (b) "Materials required for track maintenance" has the same
30   meaning as in section 5 of this act.
31       (3) This section expires June 30, 2034.


32       NEW SECTION.   Sec. 7.   A new section is added to chapter 82.16
33   RCW to read as follows:
34       (1) A credit is allowed against taxes due under this chapter of
35   expenditures made by an eligible taxpayer pursuant to subsection (2)
36   of this section.
37       (2) Qualified expenditures incurred by an eligible taxpayer may
38   be used to generate a credit for the following amounts:
                                     p. 6                          SB 5494
 1       (a) For qualified short line railroad maintenance expenditures, a
 2   credit is allowed against the taxes due under this chapter in an
 3   amount equal to 50 percent of the qualified short line railroad
 4   maintenance expenditures. The amount of the credit may not exceed an
 5   amount equal to $5,000 multiplied by the number of miles of railroad
 6   track owned or leased in the state by the eligible taxpayer as of the
 7   close of the taxable year.
 8       (b) For qualified new rail development expenditures, a credit is
 9   allowed against the taxes due under this chapter in an amount equal
10   to 100 percent of the new rail development expenditures of an
11   eligible taxpayer. The amount of the credit for new rail development
12   expenditures may not exceed $2,000,000 for each new rail development
13   project of an eligible taxpayer.
14       (c) For qualified railroad modernization and rehabilitation
15   expenditures, a credit is allowed against the taxes due under this
16   chapter in an amount equal to 100 percent of the qualified railroad
17   modernization   and  rehabilitation  expenditures   by   an  eligible
18   taxpayer.
19       (3) The credit claimed may not exceed the tax that would
20   otherwise be due under this chapter. Refunds may not be granted in
21   the place of credits. Expenditures not used to earn a credit in one
22   fiscal year may be carried forward for no more than five years
23   immediately following the year that the credit was allowed.
24       (4) An eligible taxpayer may assign distribution of all or a
25   portion of the allowed credit or an unused portion of the credit by
26   written agreement to any taxpayer subject to the tax imposed under
27   this section at any time during the year in which the credit is
28   earned   and  the   years  following   the  year   of  the  qualified
29   expenditures. The taxpayer originally allowed the credit and the
30   subsequent transferee shall jointly file a copy of the written credit
31   transfer agreement with the department. The agreement shall include
32   the names, addresses, and taxpayer identification numbers of the
33   parties to the transfer, the amount of the credit being transferred,
34   the year the credit was originally allowed to the transferring
35   taxpayer, and the tax year or years for which the credit may be
36   claimed.
37       (5) The department shall administer the credit. The department
38   shall provide a simple credit application form that the department
39   shall post on its website.


                                     p. 7                          SB 5494
 1       (6) No new credits may be issued after June 30, 2034, except
 2   credits that are being carried forward from prior years may be
 3   applied in accordance with subsection (3) of this section.
 4       (7) For the purposes of this section, the following definitions
 5   apply:
 6       (a) "Eligible taxpayer" means:
 7       (i) Any railroad subject to the tax under this chapter that is
 8   classified by the United States surface transportation board as a
 9   class II or class III railroad, as defined in 49 C.F.R. Sec.
10   1201.1-1(a), as in effect January 1, 2023;
11       (ii) Any railroad owned by a port, city, or county in the state
12   of Washington; or
13       (iii) Any owner or lessee of rail siding, industrial spur, or
14   industry track located on or adjacent to a class II or class III
15   railroad in the state of Washington.
16       (b)   "Qualified   new  rail   development   expenditures"   means
17   expenditures for new rail development by an eligible taxpayer, which
18   includes the construction of new track, industrial leads, switches,
19   spurs, sidings, rail loading docks, and transloading structures
20   involved with providing rail services to new customer locations or
21   existing customer expansions in the state by an eligible taxpayer.
22       (c)   "Qualified   railroad   modernization   and   rehabilitation
23   expenditures" means expenditures by an eligible taxpayer to upgrade
24   less than 90 pound rail and switches, 286,000 capacity rail upgrades
25   to the mainline track, major rail and tie replacement projects, track
26   capacity enhancements, bridge rehabilitation or bridge replacement
27   projects, or other track-related projects determined to enhance or
28   modernize the existing track infrastructure in the state by an
29   eligible taxpayer.
30       (d) "Qualified short line railroad maintenance expenditures"
31   means expenditures for railroad infrastructure including, but not
32   limited to, rail, ties, tie plates, joint bars, fasteners, switches,
33   ballast, subgrade, roadbed, bridges, industrial leads, sidings,
34   signs, safety barriers, crossing signals and gates, and related track
35   structures owned or leased by a class II or class III railroad.
36       (8) This section expires June 30, 2039.


37       NEW SECTION.   Sec. 8.   A new section is added to chapter 82.16
38   RCW to read as follows:


                                     p. 8                          SB 5494
 1       (1) Any owner or operator of a class I railroad, or owner of a
 2   company that recycles railroad material, is eligible for an exemption
 3   from the tax under this chapter in the form of a credit as provided
 4   in this section if:
 5       (a) The class I railroad transfers to an eligible taxpayer
 6   railroad rail, ties, tie plates, joint bars, fasteners, switches,
 7   ballast, or other equipment or materials that are part of the rail
 8   infrastructure it has removed from use on the main railroad line to
 9   be installed on tracks used by class II and class III railroads; or
10       (b) The owner of a company that recycles railroad materials
11   transfers to an eligible taxpayer rail, ties, tie plates, joint bars,
12   fasteners, switches, ballast, or other equipment or materials that
13   are part of the rail infrastructure to be installed on tracks used by
14   class II and class III railroads.
15       (2) The credit is equal to the fair market value of the donated
16   materials used for track maintenance, expansion, or modernization.
17       (3) An owner or operator of a class I railroad, or owner of a
18   company that recycles railroad material, may assign distribution of
19   all or a portion of the allowed credit or an unused portion of the
20   credit by written agreement to any taxpayer subject to the tax
21   imposed under this section at any time during the year in which the
22   credit is earned and the years following the year of the qualified
23   expenditures. The taxpayer originally allowed the credit and the
24   subsequent transferee shall jointly file a copy of the written credit
25   transfer agreement with the department. The agreement shall include
26   the names, addresses, and taxpayer identification numbers of the
27   parties to the transfer, the amount of the credit being transferred,
28   the year the credit was originally allowed to the transferring
29   taxpayer, and the tax year or years for which the credit may be
30   claimed.
31       (4) The department shall administer the credit. The department
32   shall provide a simple credit application form that the department
33   shall post on its website.
34       (5) No new credits may be issued after June 30, 2034, except
35   credits that are being carried forward from prior years may be
36   applied in accordance with subsection (2) of this section.
37       (6) For purposes of this section, "eligible taxpayer" means:
38       (a) Any railroad subject to the tax under this chapter that is
39   classified by the United States surface transportation board as a


                                     p. 9                          SB 5494
1    class II or class III railroad, as defined in 49 C.F.R. Sec.
2    1201.1-1(a), as in effect January 1, 2023;
3        (b) Any railroad owned by a port, city, or county in the state of
4    Washington; or
5        (c) Any owner or lessee of rail siding, industrial spur, or
6    industry track located on or adjacent to a class II or class III
7    railroad in the state of Washington.
8        (7) This section expires June 30, 2039.


 9       NEW SECTION.   Sec. 9.   (1) This section is the tax preference
10   performance  statement   for   the  tax   preferences  contained   in
11   chapter . . ., Laws of 2023 (this act). This performance statement is
12   only intended to be used for subsequent evaluation of the tax
13   preferences. It is not intended to create a private right of action
14   by any party or be used to determine eligibility for preferential tax
15   treatment.
16       (2) The legislature categorizes the tax preferences in this act
17   as ones intended to accomplish a general purpose, as indicated in RCW
18   82.32.808(2)(f), which is to promote economic development throughout
19   Washington.
20       (3) It is the legislature's specific public policy objective to
21   encourage and expand economic development by incentivizing investment
22   in Washington's railroad infrastructure.
23       (4) The legislature intends to extend the expiration date of the
24   tax preferences in this act if a review finds that freight rail
25   system in the state has been maintained or improved. In conducting
26   its review under this section, the joint legislative audit and review
27   committee should consider, among other measures:
28       (a) The total miles capable of transporting 286,000-pound
29   railcars;
30       (b) The number of miles of track rehabilitated to 90-pound rail
31   or greater;
32       (c) The number of ties replaced;
33       (d) The amount of ballast replaced;
34       (e) The number of bridges returned from out of service or able to
35   operate heavier loaded equipment;
36       (f) The number of switches installed;
37       (g) Any related safety benefits of addressing at-grade crossings;
38       (h) The number of rail cars from increased economic activity;


                                     p. 10                         SB 5494
 1       (i) Any improvement in federal railroad administration track
 2   classification designation up to and including class II track and the
 3   ability to operate at greater speeds; and
 4       (j) The amount of steel or ties deemed obsolete by a class I
 5   railroad, as defined in section 2 of this act, that are reused by a
 6   class II or class III railroad, as defined in section 5 of this act,
 7   within Washington.
 8       (5) In order to obtain the data necessary to perform a review in
 9   subsection (4) of this section, the joint legislative audit and
10   review committee may refer to any data collected by the state.


11      NEW SECTION.   Sec. 10.   This act takes effect January 1, 2024.

                                   --- END ---




                                      p. 11                         SB 5494


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