Personal Income Tax Law: Corporation Tax Law: credits: shortline railroad expenditures and railroad infrastructure.

SB 1287

California Bills

20250SB__128798AMD INTRODUCED 2026-02-20 AMENDED_SENATE 2026-04-09 2025 SB AMD Introduced by Senator Hurtado LEAD_AUTHOR SENATE Hurtado

An act to add and repeal Sections 17053.31, 17053.32, 23631, and of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. taxation, to take effect immediately, tax levy Personal Income Tax Law: Corporation Tax Law: credits: shortline railroad expenditures and railroad infrastructure. The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill, the Shortline Railroad Modernization Act of 2026, would allow credits against those taxes for each taxable year beginning on or after January 1, 2027, and before January 1, 2032, to a qualified taxpayer in an amount equal to 50% of the qualified shortline railroad expenditures and for each taxable year beginning on or after January 1, 2028, and before January 1, 2033, in an amount equal to 50% of the qualified new rail infrastructure expenditures, as defined and specified.

Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements. This bill would include additional information required for any bill authorizing a new tax expenditure. This bill would take effect immediately as a tax levy. MAJORITY NO YES NO YES NO YES NO NO NO NO The people of the State of California do enact as follows:

SECTION 1. This act shall be known, and may be cited, as the “Shortline Railroad Modernization Act of 2026.”

SEC.

Section 17053.31 is added to the Revenue and Taxation Code , to read: 17053.31. (a)

(1) For taxable years beginning on or after January 1, 2027, and before January 1, 2032, there shall be allowed to a qualified taxpayer a credit against the “net tax,” as defined in

Section 17039, in an amount equal to percent of the qualified taxpayer’s qualified shortline railroad expenditures, subject to paragraph (2).

(2) The amount of the credit allowed by this

section shall not exceed the product of five thousand dollars ($5,000) and the number of miles of railroad track owned or leased within the State of California by the qualified taxpayer at the close of the taxable year for which the credit is claimed.

(3) The credit shall be allowed for the taxable year in which the department issues the credit certificate pursuant to subdivision (d).

(4) The aggregate amount of credits that may be allocated in a fiscal year pursuant to this

section and

Section shall not exceed seven million dollars ($7,000,000). (

b) For purposes of this section: (1) “Board” means the Franchise Tax Board. (2) “Department” means the Department of Transportation. (3) (A) “Qualified shortline railroad expenditures” means nonreimbursed costs paid or incurred by the qualified taxpayer for railroad infrastructure maintenance or capital improvements of infrastructure or capital owned or leased by the qualified taxpayer to operate a Class II or Class III railroad, including, but not limited to, maintenance of or improvements to rail, tie plates, joint bars, fasteners, switches, ballast, subgrade, bridges, industrial leads, sidings, signs, safety barriers, crossing signal and gates, industrial spur, industry track, and related track structures. (B) “Qualified shortline railroad expenditures” does not include any cost paid or incurred by the qualified taxpayer that is used as the basis for a federal tax credit, that is funded by a federal grant, or that was paid or incurred more than months before the date the qualified taxpayer submitted their application for credit certification. (4) “Qualified taxpayer” means A company that owns "?> a person or entity engaged in a trade or business that operates a railroad located wholly or partly in California that is classified by the federal Surface Transportation Board as a Class II or Class III railroad. (B)<xhtml:span class="EnSpace"/>An owner or lessee of a rail siding, industrial spur, or industry track located on or adjacent to any railroad in California.</xhtml:p>"?> (c) "?>In the case where the credit allowed under this

section exceeds the “net tax,” as defined in

Section 17039, for a taxable year, the excess credit may be carried over to reduce the “net tax” in the following taxable year, and succeeding five taxable years, if necessary, until the credit has been exhausted. (2)<xhtml:span class="EnSpace"/>A credit allowed pursuant to this

section for a qualified taxpayer that is a partnership, limited liability company, or an estate or trust shall be distributed to the partner, members, or beneficiaries in the same manner as income is distributed.</xhtml:p><xhtml:p>(3)<xhtml:span class="EnSpace"/>A qualified taxpayer may assign all or part of the credit allowed pursuant to this section.</xhtml:p><xhtml:p>(A)<xhtml:span class="EnSpace"/>The qualified taxpayer and the assignee shall report to the Franchise Tax Board, in the form and manner specified by the board, all required information regarding the assignment of the credit.

The amount paid in consideration of the assignment shall not exceed the amount of the credit assigned.</xhtml:p><xhtml:p>(B)<xhtml:span class="EnSpace"/>A credit shall not be assigned pursuant to this paragraph to more than one taxpayer, nor may the credit be reassigned by the assignee to another taxpayer.</xhtml:p><xhtml:p>(C)<xhtml:span class="EnSpace"/>A party that has acquired a tax credit under this

section shall be subject to the requirements of this section.</xhtml:p><xhtml:p>(D)<xhtml:span class="EnSpace"/>A qualified taxpayer shall not assign a tax credit to the extent the tax credit allowed by this

section is claimed on any tax return of the qualified taxpayer.</xhtml:p><xhtml:p>(E)<xhtml:span class="EnSpace"/>In the event that the taxpayer originally allocated a credit under this

section by the department and a taxpayer to whom the credit has been assigned both claim the same amount of credit on their tax returns, the board may disallow the credit of either taxpayer, so long as the statute of limitations upon assessment remains open.</xhtml:p>"?> (

d) If the credit allowed by this

section is claimed by a qualified taxpayer, any deduction or credit otherwise allowed under this part for any qualified expenditures made by the qualified taxpayer as a trade or business expense shall be reduced by the amount of the credit allowed by this section. (

e) Notwithstanding any other law, a qualified taxpayer may sell any credit allowed under this

section to an unrelated party. (d)</xhtml:p>"?> (f)

(1) To be allocated a credit under this section, a taxpayer shall apply to the department for a credit certification pursuant to this subdivision.

(2) The taxpayer shall submit an application, in the form and manner prescribed by the department, for qualified shortline railroad expenditures incurred. The application shall include all of the following: (

A) The number of miles of railroad track owned or leased in California. (

B) A statement, under penalty of perjury, describing the taxpayer’s qualified shortline railroad expenditures, including itemized amounts and the infrastructure maintenance or capital improvement for which the expense was paid or incurred. (

C) The estimated number of miles of railroad track owned or leased in California at the close of the taxable year in which the credit will be claimed if a certificate is issued by the department. (

D) Information regarding the beginning and end of the taxpayer’s taxable year. (

E) Any information deemed necessary by the department to determine whether the taxpayer is a qualified taxpayer. (

F) Any information deemed necessary by the department to determine the amount of the credit. (3) (

A) The department shall evaluate a taxpayer’s application and shall issue a credit certificate upon determining that the taxpayer meets all of the following: (

i) Is a qualified taxpayer. (ii) Will likely continue to be a qualified taxpayer for the taxable year in which the credit certificate is issued. (iii) Has qualified shortline railroad expenditures. (iv) Has satisfactorily submitted a complete application pursuant to paragraph (2). (

B) The department shall issue credit certificates on a first-come-first-served basis, subject to the aggregate amount allowed under paragraph (4) of subdivision (a). (A)</xhtml:p>"?> (

C) The certificate shall state the amount of the credit allocated to the qualified taxpayer as allowed by this section. The credit amount allocated shall be calculated as described in subdivision (a). (B)</xhtml:p>"?> (

D) The department shall annually provide the board with a list of qualified taxpayers to whom a certificate has been issued and the tax credit amounts allocated to each qualified taxpayer. (

E) The board may disallow a credit to a taxpayer that has received a credit certificate from the department if the board finds that the taxpayer does not meet the criteria described in subparagraph (

A) of paragraph (3). (e)</xhtml:p>"?> (

g) The department and the board may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section. (f)</xhtml:p>"?> (

h) For purposes of complying with

Section for the tax credits allowed under this

section and Sections 17053.32, 23631, and 23632, the Legislature finds and declares all of the following:

(1) The specific goals, purposes, and objectives the tax credits will achieve include all of the following: (

A) Improving the safety, reliability, and efficiency of shortline and regional rail service, consistent with the California State Rail Plan. (

B) Preserving and enhancing rail access for existing industrial, agricultural, and commercial shippers, and facilitating new rail-served economic development. (

C) Supporting the diversion of freight movement from trucks to rail by preserving and expanding rail infrastructure capacity, thereby reducing highway congestion, pavement damage, and vehicle emissions. (

D) Supporting job retention and job creation in rail-dependent industries and associated supply chains through increased private capital investment in rail infrastructure.

(2) The detailed performance indicators for the Legislature to use when measuring whether the tax credits meet the goals, purposes, and objectives described in subparagraph (

A) include all of the following: (

A) The number of miles of railroad track improved, rehabilitated, or constructed as a result of projects receiving the credit. (

B) The number and type of rail infrastructure projects completed, including track, bridges, sidings, and spurs. (

C) Private capital investment leveraged by the tax credits, expressed as a ratio of private dollars invested per dollar of tax credit claimed.

(3) Data collection requirements to enable the Legislature to determine whether the tax credits are meeting, failing to meet, or exceeding those specific goals, purposes, and objectives include both of the following: (

A) A description of each project for which the credit was claimed, including project location and general scope of work, and, where applicable, the approximate number of track miles improved or constructed. (

B) The amount of qualified expenditures incurred and the amount of credit claimed. (i)

(1) On or before June 30, 2028, and each June thereafter, the department, in collaboration with the board, and to the extent feasible, shall submit a report to the Legislature in compliance with

Section of the Government Code containing the information described in paragraph (3) of subdivision (

h) for the most recent taxable year.

(2) The disclosure provisions of this paragraph shall be treated as an exception to

Section 19542. (

j) This

section shall remain in effect only until December 1, 2032, and as of that date is repealed.

SEC.

Section 17053.32 is added to the Revenue and Taxation Code , to read: 17053.32. (a)

(1) For taxable years beginning on or after January 1, 2028, and before January 1, 2033, there shall be allowed to a qualified taxpayer a credit against the “net tax,” as defined in

Section 17039, in an amount equal to percent of the qualified taxpayer’s qualified new rail infrastructure expenditures, subject to paragraph (2).

(2) The amount of the credit allowed by this

section shall not exceed one million dollars ($1,000,000) per new rail infrastructure project completed in the taxable year for which the credit is claimed.

(3) The credit shall be allowed for the taxable year in which the department issues the credit certificate pursuant to subdivision (d).

(4) The aggregate amount of credits that may be allocated in a fiscal year pursuant to this

section and

Section shall not exceed ten million dollars ($10,000,000). (

b) For purposes of this section: (1) “Board” means the Franchise Tax Board. (2) “Department” means the Department of Transportation. (3) “New rail infrastructure project” means a project to construct new rail infrastructure, or improvements thereto, included with servicing customer locations or expansions by any railroad located in California, including, but not limited to, a right-of-way; new track, including industrial leads, switches, spurs, and siding; rail loading dock; and transloading structures. (4) (A) “Qualified new rail infrastructure expenditures” means nonreimbursed costs paid or incurred by the qualified taxpayer for a new rail infrastructure project that has been precertified by the department and is commenced within months of the issuance of a credit precertification letter. (B) “Qualified new rail infrastructure expenditures” does not include any cost paid or incurred by the qualified taxpayer that is used as the basis for a federal tax credit, that is funded by a federal grant, or that was paid or incurred more than months before the date the qualified taxpayer submitted their application for credit certification. (5) (A) “Qualified taxpayer” means either of the following: (A)</xhtml:p>"?> (

i) A company that owns, or a person or entity engaged in a trade or business that operates, a railroad located wholly or partly in California that is classified by the federal Surface Transportation Board as a Class II or Class III railroad. (B)</xhtml:p>"?> (ii) An owner or lessee of a rail siding, industrial spur, or industry track located on or adjacent to any railroad in California. (B) “Qualified taxpayer” does not include a railroad that is classified by the federal Surface Transportation Board as a Class I railroad. (c) "?>In the case where the credit allowed under this

section exceeds the “net tax,” as defined in

section for a qualified taxpayer that is a partnership, a limited liability company, an S corporation, or an estate or trust shall be distributed to the partner, members, shareholders, or beneficiaries in the same manner as income is distributed.</xhtml:p><xhtml:p>(3)<xhtml:span class="EnSpace"/>A qualified taxpayer may assign all or part of the credit allowed pursuant to this section.</xhtml:p><xhtml:p>(A)<xhtml:span class="EnSpace"/>The qualified taxpayer and the assignee shall report to the Franchise Tax Board, in the form and manner specified by the board, all required information regarding the assignment of the credit.

section is claimed on any tax return of the qualified taxpayer.</xhtml:p><xhtml:p>(E)<xhtml:span class="EnSpace"/>In the event that the taxpayer originally allocated a credit under this

d) If the credit allowed by this

e) Notwithstanding any other law, a qualified taxpayer may sell any credit allowed under this

section to an unrelated party. (d)</xhtml:p>"?> (f)

(1) To be allocated a credit under this section, a taxpayer shall apply to the department for a credit precertification and a credit certification pursuant to this subdivision. (2) (

A) A taxpayer shall submit an application for a credit precertification, in the form and manner prescribed by the department. The application shall include all of the following: (

i) The number of miles of railroad track owned or leased in California. (ii) A statement, under penalty of perjury, describing the taxpayer’s anticipated qualified new rail infrastructure expenditures, including itemized amounts and the new rail infrastructure project for which the expense was paid or incurred. (iii) The estimated number of miles of railroad track owned or leased in California at the close of the taxable year in which the credit will be claimed if a certificate is issued by the department. (iv) Information regarding the beginning and end of the taxpayer’s taxable year. (

v) Any information deemed necessary by the department to determine whether the taxpayer is a qualified taxpayer. (vi) Any information deemed necessary by the department to determine the amount of the credit. (B) (

i) Beginning January 1, 2027, and before January 1, 2033, the department shall establish quarterly application windows for precertification applications. Applications received during a quarterly window shall be reviewed together. The department shall evaluate a taxpayer’s application and shall issue a credit precertification letter upon finding the project and taxpayer meet the following requirements for a credit allowed by this section, in accordance with the priority criteria described in subparagraph (

C) and subject to the annual aggregate amount allowed under paragraph (4) of subdivision (a): (

I) Is a qualified taxpayer. (II) Will likely continue to be a qualified taxpayer for the taxable year in which the credit certificate is issued. (III) Will have qualified new rail infrastructure expenditures. (IV) Has satisfactorily submitted a complete application pursuant to this paragraph. (ii) The credit precertification letter shall include the maximum amount of the credit allowed under this section, which shall be calculated as described in subdivision (

a) and based on the estimated new rail infrastructure expenditures included in the application. (iii) The board may disallow a credit to a taxpayer that has received a credit certificate from the department if the board finds that the taxpayer does not meet the criteria described in clause (i). (

C) The department shall give priority to applications for projects that provide critical rail access to industrial parks, ports, or economic development projects located adjacent to rail or that serve businesses in value-added agriculture, advanced manufacturing, supply chain or distribution solutions, or environmentally friendly or sustainable manufacturing, including those reducing carbon emissions or utilizing renewable energy. (

D) If the annual aggregate amount allowed under paragraph (4) of subdivision (

a) is not fully allocated in any quarterly period, the unused amount shall carry forward to the next quarterly application period within the same fiscal year. Any amount not awarded by the close of the fiscal year shall expire.

(3) The qualified taxpayer shall annually submit an application, in the form and manner prescribed by the department, pertaining to qualified new rail infrastructure expenditures incurred for the new rail infrastructure project. The taxpayer shall provide any documentation required by the department to determine whether the taxpayer has incurred qualified new rail infrastructure expenditures submitted in their application for which a credit precertification letter was issued. (

A) The department shall evaluate a taxpayer’s application and shall issue a credit certificate upon finding the taxpayer meets both of the following: (

i) Is a qualified taxpayer. (ii) Has paid or incurred new costs for qualified new rail infrastructure expenditures that were included in their precertification letter. (

B) The certificate shall state the amount of the credit allowed for the taxable year for which the annual certification application was received and the remaining amount of the credit allocated pursuant to the precertification letter. Notwithstanding paragraph (1) of subdivision (a), the amount of the credit shall not exceed the maximum amount listed in the credit precertification letter. (

C) The department shall annually provide the board with a list of taxpayers to whom a certificate has been issued, the tax credit amounts allocated to each qualified taxpayer for the current taxable year, the remaining amounts of credits allocated pursuant to precertification letters, and any other information the board deems necessary for administering the credit allowed by this section. (e)</xhtml:p>"?> (

g) The department and the board may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section. (

h) This

section shall remain in effect only until December 1, 2033, and as of that date is repealed.

SEC. 4.

Section is added to the Revenue and Taxation Code , to read: 23631. (a)

(1) For taxable years beginning on or after January 1, 2027, and before January 1, 2032, there shall be allowed to a qualified taxpayer a credit against the “tax,” defined in

Section 23036, in an amount equal to percent of the qualified taxpayer’s qualified shortline railroad expenditures, subject to paragraph (2).

(2) The amount of the credit allowed by this

(3) The credit shall be allowed for the taxable year in which the department issues the credit certificate pursuant to subdivision (d).

(4) The aggregate amount of credits that may be allocated in a fiscal year pursuant to this

section and

Section 17053.31 shall not exceed seven million dollars ($7,000,000). (

b) For purposes of this section: (1) “Board” means the Franchise Tax Board. (2) “Department” means the Department of Transportation. (3) (A) “Qualified shortline railroad expenditures” means nonreimbursed costs paid or incurred by the qualified taxpayer for railroad infrastructure maintenance or capital improvements of infrastructure or capital owned or leased by the qualified taxpayer to operate a Class II or Class III railroad, including, but not limited to, maintenance of or improvements to rail, tie plates, joint bars, fasteners, switches, ballast, subgrade, bridges, industrial leads, sidings, signs, safety barriers, crossing signal and gates, industrial spur, industry track, and related track structures. (B) “Qualified shortline railroad expenditures” does not include any cost paid or incurred by the qualified taxpayer that is used as the basis for a federal tax credit, that is funded by a federal grant, or that was paid or incurred more than months before the date the qualified taxpayer submitted their application for credit certification. (4) “Qualified taxpayer” means A company that owns"?> a person or entity engaged in a trade or business that operates a railroad located wholly or partly in California that is classified by the federal Surface Transportation Board as a Class II or Class III railroad. (B)<xhtml:span class="EnSpace"/>An owner or lessee of a rail siding, industrial spur, or industry track located on or adjacent to any railroad in California.</xhtml:p>"?> (c) "?>In the case where the credit allowed under this

section exceeds the “tax,” defined in

Section 23036, for a taxable year, the excess credit may be carried over to reduce the “tax” in the following taxable year, and succeeding five taxable years, if necessary, until the credit has been exhausted. (2)<xhtml:span class="EnSpace"/>A qualified taxpayer may assign all or part of the credit allowed pursuant to this section.</xhtml:p><xhtml:p>(A)<xhtml:span class="EnSpace"/>The qualified taxpayer and the assignee shall report to the Franchise Tax Board, in the form and manner specified by the board, all required information regarding the assignment of the credit.