Monday, January 31, 2011

A Modest Proposal - Taxation of Railroad Property

Over at a respected railroad discussion site, Railroad Net, a member has set forth "a modest proposal" (pardon me, Mr. Swift) regarding taxation of railroad property that host passenger train service. Here is the proposal:

From my article "Amtrak in the New Century" on, Given that the Federal government continues to fund and operate [Amtrak] trains, in exchange for access and service guarantees by the private railroads, the rights of way Amtrak operates on should be exempt from local and state property taxes.

This proposal forms the core of my argument for providing a more efficient means of ensuring high quality rail passenger service in the United States for the next 100 years. It also addresses historic problems with rail passenger service in the United States that Mr. David P. Morgan wrote about in April 1959's iconic issue of Trains. If the federal government is going to pay to operate trains 'in the public interest' along these corridors I do not see why state and local governments should be able to 'double-dip' and receive both federally funded train service and property taxes from privately owned rights of way. In my view this situation is akin to allowing the taxation of properties owned by the United States Postal Service.

There is much merit to this proposal. The Local taxing jurisdictions through which Amtrak trains pass, be they Corridor or LD, do receive some benefit, even if I personally hold quite small in the case of the LD's, for having those trains there. It would also provide additional remuneration to the Class I's that host Amtrak trains. While the amount and basis of such remuneration is contained within a bi-lateral contract that is not subject to public disclosure, it is reportedly in the bargain basement range - especially considering the potential interference with freight operations these trains can represent.

A problem, however, would arise with jurisdictions through which trains operate but do not make any station stops. For example, Amtrak trains #3-4, Southwest Chief, operate non-stop between Newton and Dodge City KA - 120 miles. Who knows how many local taxing jurisdictions that comprises - and some of course will be quick to cry foul. By that line of thought, only jurisdictions in which the station stops were located should have to participate in the abatement - and then one must ask how much benefit would inure to the Class I.

Even though real property taxation was an area in which my railroad career never touched, I do know that railroad property is quickly allocated into two categories - namely Operating Property and Non-Operating Property. Non-operating Property, or that property not being addressed here, is taxed ad-valorem, or in just the same manner as is your home. However, Operating Property is taxed by means of a formula which not only encompasses assessed value, but also the revenue that a railroad attains from such. This simply means "lots of trains, lots of taxes". and hence making the abatement more valuable to the Class I, but, on the flip side, more costly to the affected Local jurisdiction. If the affected jurisdictions, through the auspice of a citizen residing within such, petitioned the Federal government for relief (namely to have their representatives initiate legislation to have Federal funding meet the revenue shortfall), then we come down to the 'chicken-egg' analogy of tax incentives simply represent an appropriation. Therefore, why the subterfuge; simply increase Amtrak's appropriation and have such "earmarked' as additional contract payments to the Class I hosts.

Finally, I'm sure that anyone here who actively railfans has seen a railroad siding on which one or two lone boxcars sit. The reason for such is with a track remaining in place and the cars periodically switched out, that particular parcel remains Operating Property - and property that is generating no revenue. The most visible case of that was to anyone visiting the observation deck at Sears (now Willis) Tower in Chicago. After the B&OCT (CSX) abandoned (well before A-Day) Grand Central Station, several boxcars would be placed on a remaining track near the head house - and even after that was torn down.

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