New TN law will impose taxes on large railroads to benefit smaller ones

By Chris Butler | Tennessee Watchdog

NASHVILLE — A new Tennessee law will impose higher taxes on large railroads to pay for the needs of short-line railroads.

The language of what is known as the Transportation Fuel Equity Act doesn’t seem to explicitly say as much. Taxing large railroads, however, is the law’s primary intent, said Tausha Alexander, executive director of Tennessee Railroad, Inc.

Large out-of-state companies will benefit from this law because they are the primary owners of the smaller railroads, Alexander said, adding that no other state has a law quite like this.

EQUITY: An organization representing the interests of large railroads in Tennessee says they will have to start subsidizing smaller railroads.

Republican Gov. Bill Haslam is expected to sign the bill into law.

The law will impose a 17-cent per gallon tax on these large Class 1 railroad carriers. It’s the same tax the state imposes on large commercial trucks that travel Tennessee’s highways, Alexander said.

But Alexander seems to have a problem with the legislation’s use of the term “equity.”

“It’s important to note that barges were omitted out of the bill because of the amount of opposition that those interests raised to the legislation,” Alexander said. “We wouldn’t describe it as an equity fuel bill at all, in any circumstance.”

The legislation’s two sponsors, state Rep. Gerald McCormick, R-Chattanooga, and state Sen. Mark Norris, R-Collierville, didn’t return Tennessee Watchdog’s requests for comment.

“It was aimed at the railroads,” Alexander told Tennessee Watchdog.

The new law, she added, essentially subsidizes one segment of the railroad industry by taxing another.

“It arises out of a lawsuit, which the state lost in a ruling in 2013, related to the sales tax applied to diesel fuel in the state that only railroads were paying, and so the state is currently enjoined from collecting tax under that old regime, which was a sales tax. They came with a new proposal this year for a new tax for the railroads,” Alexander said.

“It’s essentially the Highway Use Tax that trucks pay. It puts us in that section of the code, essentially making it a user consumption tax,” she said.

LOBBYING: Heavily lobbying from short line railroad interests helped sway Republican legislators, according to Tausha Alexander.

In an editorial she wrote for the Tennessean earlier this month, Alexander said the new tax will take revenue from Class 1 railroads to pay for track and bridge rehabilitation needs for smaller railroads, known as short lines, in some parts of Tennessee.

Short lines generally service small towns and small industrial needs.

“The short lines portray an image as local, small-town businesses serving the local good while barely skimming by financially,” Alexander wrote.

During the past two decades, the equity fund has provided $210 million to 18 short-line railroads in the state, Alexander added.

“A local rail authority is required to receive funds, but most of these short lines are owned and/or operated by corporations — in many cases, large companies that operate short lines in multiple states.”

Alexander told Tennessee Watchdog an intense lobbying effort from short-line railroad business interests was enough to sway majority Republican legislators into passing the bill.

The law doesn’t become effective until July 1.

Contact Christopher Butler at chris@tennesseewatchdog.org. or follow him and submit story ideas on his official Facebook page.

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