What is the Kansas short line railroad tax credit for track maintenance?

Plain-English summary

Kansas Notice 22-05 explains a new short line railroad income tax credit created by 2022 House Bill 2239 (New Section 18), for tax years 2022 through 2031.

Who is eligible. An "eligible taxpayer" is any Class II or Class III railroad subject to the Kansas income tax act, or any owner or lessee of rail siding located on or adjacent to a Class II or Class III railroad in Kansas.

The credit. It equals 50% of qualified railroad track maintenance expenditures paid or incurred during the year for track located in Kansas. Expenditures used to generate a federal tax credit, or funded by a state or federal grant, do not qualify.

Caps. The credit is limited to $5,000 per mile of track or per rail siding owned or leased within Kansas at the close of the year (a mile of track counts only once per year). Total statewide credits are limited to $8.72 million per year.

How to claim. All qualified expenditures must be paid or incurred before applying. Apply on Form K-205, Short Line Railroad Tax Credit Application; after review and approval, the Department issues a tax credit certificate, and the credit is claimed on Schedule K-29 with the income tax return. The credit is not refundable but unused amounts may be carried forward up to five years.

Transferable. Unused credit may be transferred by written agreement to an "eligible customer" (a business that uses or is served by short line railroads, or stores railcars on one) or an "eligible vendor" (a person providing railroad-related services directly to the eligible taxpayer) -- but not to a Class I railroad. A transfer must occur within the five years following the year the credit was allowed. Report a transfer on Form K-260. A transferee may claim the credit in the year the expenditures were made or the year it received the credit, and may carry unused amounts forward up to five years; it is not refundable.

What this means for you

Short line railroads and rail siding owners

• If you are a Class II or Class III railroad, or own or lease rail siding on one, you can earn a Kansas credit for half of your Kansas track maintenance costs, up to $5,000 per mile.
• Expenditures already funded by a federal credit or a state/federal grant don't count.
• Apply on Form K-205 and claim on Schedule K-29; the credit is not refundable but carries forward up to five years, and the statewide pool is capped at $8.72 million per year.

Railroad customers and vendors

• If you can't use the full credit, you can transfer it (by written agreement, reported on Form K-260) to an eligible customer or vendor -- not a Class I railroad -- who can then claim it and carry it forward up to five years.

Common questions

How much is the credit? 50% of qualified Kansas track maintenance expenditures, capped at $5,000 per mile of track or per rail siding.

Who qualifies? Class II or Class III railroads subject to Kansas income tax, and owners or lessees of rail siding on such railroads.

What years does it cover? Tax years 2022 through 2031.

Is it transferable? Yes -- to an eligible customer or vendor (not a Class I railroad), reported on Form K-260.

Is it refundable? No, but unused credit carries forward up to five years.

Citations and references

• House Bill 2239 (2022), New Section 18 -- created the short line railroad tax credit for tax years 2022 through 2031, equal to 50% of qualified track maintenance (up to $5,000 per mile), with an $8.72 million annual statewide cap and transferability to eligible customers and vendors.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 22-05

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.gov
Mark A. Burghart, Secretary Laura Kelly, Governor

                                        NOTICE 22-05

                           SHORT LINE RAILROAD CREDIT

                                     (OCTOBER 7, 2022)

   During the 2022 Legislative Session House Bill 2239 was passed and signed into law. New

Section 18 of the Bill creates a new income tax credit for 50% of an eligible taxpayer's qualified
railroad track maintenance expenditures.

   Subsection (e) of Section 18 defines the term "eligible taxpayer" to include any railroad

subject to the Kansas income tax act that is a Class II or Class III railroad, or any owner or lessee
of rail siding located on or adjacent to a Class II or Class III railroad in the state of Kansas. The
credit is equal to 50 percent of the qualified track maintenance expenditures paid or incurred during
the taxable year for track located in the state of Kansas. It is available for tax years 2022 through
2031. Expenditures used to generate a federal tax credit or funded by a state or federal grant do
not qualify for the credit.

   The amount of the credit is limited to $5,000 per mile of track or per rail siding owned or

leased within the state as of the close of the taxable year. A mile of track may be taken into account
only once in each taxable year. The total amount of statewide credits allowed for each taxable
year is limited to $8.72 million.

   All qualified track maintenance expenditures must be paid or incurred before an

eligible taxpayer can apply for a credit. An application is made on Form K-205, Short Line
Railroad Tax Credit Application. Following review and approval of the
application, the Department will issue a tax credit certificate to the eligible taxpayer. The
credit will be claimed by completing and submitting a Schedule K-29 with the eligible taxpayer's
income tax return.

  Any credit not used by an eligible taxpayer in the year it is allowed can be carried forward

for up to five taxable years immediately following the taxable year for which the credit
was allowed. The credit is not refundable.

   Any credit not used by an eligible taxpayer may be transferred, by written agreement,

from the eligible taxpayer to an eligible customer or an eligible vendor. Subsection (e) of
Section 18 defines an "eligible customer" as a business that uses short line railroads or
railroad-related property within Kansas, that is served by a short line railroad, or stores railcars
on the short line railroad. An "eligible vendor" is defined as a person providing railroad-related
services directly to the eligible taxpayer earning the credits. Eligible customers and
eligible vendors do not include Class I railroads.

  A transfer from an eligible taxpayer to an eligible customer or an eligible vendor must occur

during the five years immediately following the taxable year for which the credit was allowed.
After a tax credit certificate for the Short Line Railroad Tax Credit has been issued, all or part of
the short line railroad credit may be transferred. Transfers become effective per an agreement
between the two parties. Once a transfer has been made, the transferor and transferee should
complete and submit Form K-260, Kansas Tax Credit Transfer Notification Form to the
Department of Revenue. Submission of this form notifies the Department that a transfer has taken
place and allows the Department to update ownership records for tax reporting purposes.
Submission of the Form K-260 should not precede the actual transfer or agreement and does not
constitute the actual transfer. A transferee may claim a transferred credit it receives on its tax
return either in the year the expenditures were made or in the year the transferee received the
transferred credit.

  Any credit not used by an transferee in the year it is received can be carried forward for up

to five taxable years immediately following the taxable year for which the credit was allowed. The
credit is not refundable.

                                  TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our web site,

www.ksrevenue.gov. If you have questions about this Notice, please contact:

                               Taxpayer Assistance Center
                              Kansas Department of Revenue
                              Scott Office Building, 1st Floor
                                     120 SE 10th Ave
                                      P. O. Box 3506
                                 Topeka, KS 66601-3506
                                   Phone: 785-368-8222
                                    Fax: 785-291-3614