Railroads that are critical to agricultural shippers have won some permanent tax relief, while biofuel producers have received extensions of tax benefits that subsidize next-generation products and installation of blender pumps.

The tax measures were included in the massive omnibus bill that Congress passed at the end of 2020, which also made permanent the Railroad Track Maintenance Credit.

The credit is equal to 40% of expenditures paid or incurred by an eligible taxpayer on maintenance of certain railroad track, according to the Senate Finance Committee’s text.

The credit is equal to half of expenditures prior to January 2023 and “cannot exceed the product of $3,500 times the number of miles of railroad track owned or leased by (or assigned to) the eligible taxpayer as of the close of the taxable year.”

The credit has spurred $5 billion in infrastructure investment since 2005 — investment that would not have been possible without the credit, according to the American Short Line and Regional Railroad Association.

With budgets tight already, ASLRRA President Chuck Baker said short line railroad companies have very limited capital to begin with.

Chuck Baker

Chuck Baker, ASLRRA

“Over the years, it has caused huge amounts of unnecessary stress in decisionmaking,” Baker told Agri-Pulse, referring to the uncertainty of not knowing whether the tax credit would be extended or not.

ASLRRA said studies have shown the credit’s incentive could drive an infrastructure investment increase of 47% and short-term extensions of the credit make it difficult to plan and complete projects. Replacing one mile of track can cost as much as $500,000. 

“Grain and ag shippers depend on short lines and that infrastructure, so this just takes a big uncertainty off the table,” Baker said.

Senate Finance Committee Chairman Chuck Grassley said making the tax credit permanent should provide needed certainty to agriculture shippers. Rail and barge routes are "very essential for the efficient export of Iowa’s agriculture surplus,” he told reporters.

Grassley and biofuel groups are also glad to see an extension of the second-generation biofuel tax credit. 

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This provision extends through the end of 2021, the $1.01-per-gallon nonrefundable income tax credit for cellulosic biofuel sold at retail into the fuel tank of a buyer’s vehicle as well as second-generation biofuel mixtures sold or used as a fuel. Second-generation fuels are made from sources of plant cellulose, such as corn cobs, wood chips and straw. 

Ed Hubbard, general counsel and vice president of government affairs at the Renewable Fuels Association, told Agri-Pulse the second-generation biofuel tax credit was their top priority because it is important for the industry's future growth. 

Ed Hubbard

Ed Hubbard, RFA

“Those are key for moving forward in the future and making sure we diversify the feedstocks that serve as the base for biofuels including ethanol,” Hubbard stated.

An alternative fuel refueling property credit, which was extended through the end of this year, helps offset the cost of equipment that dispenses alternative fuels including ethanol, biodiesel, natural gas, hydrogen, and electricity. The credit is capped at $30,000 per location for business property and $1,000 for property installed at a principal residence.

Another credit Hubbard said RFA was pleased to see extended is the excise tax credit for alternative fuels. The credit, extended through the end of 2021, provides a 50-cent-per-gallon excise-tax credit or payment for alternative fuel and 50-cent-per-gallon credit for alternative fuel mixture.

Hubbard said the industry still hopes for longer-term certainty for the biofuel incentives. “Our focus on getting the extensions has really been an effort to maintain status quo while Congress is able to ultimately start negotiating a tax reform package,” Hubbard said.

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