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SB 3765

RAILROAD MOD CREDIT

104th Regular Session Introduced by Mike Halpin and 2 co-sponsors

Illinois offers a 50% tax credit for private investment in short line railroad maintenance and new rail infrastructure, with caps and a 2036 sunset.

Rule 3-9(a) / Re-referred to Assignments
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Bill Summary · SB 3765

Summary of SB3765 (104th Illinois General Assembly) – Short Line Railroad Modernization Act

Format: Summary highlights, provisions, and potential impact in accessible language.

What the bill would do (main purpose)

  • Establishes the Short Line Railroad Modernization Act, creating an income tax credit to encourage private investment in railroad maintenance, expansion, and new rail infrastructure in Illinois.
  • Targets Class II and Class III short line railroads and related rail-served projects to improve freight connectivity, economic development, and environmental goals.

Key provisions and changes

Tax credits created

  • Creates a new credit (Short Line Railroad Infrastructure Modernization Credit) under the Illinois Income Tax Act.
  • Eligible for taxable years beginning after January 1, 2026 and before January 1, 2036.
  • Credit equals 50% of:
    • Qualified railroad expenditures, plus
    • Qualified new rail infrastructure expenditures.
  • Expenditure classification: An expense must be either a qualified railroad expenditure or a qualified new rail infrastructure expenditure; an expenditure cannot count as both.

Definitions

  • Qualified railroad expenditures: Gross expenditures for maintenance, reconstruction, or replacement of existing railroad infrastructure owned or leased by a Class II or Class III railroad and located in Illinois. Includes track, roadbed, bridges, crossings, signals, industrial leads and sidings, and related structures. Excludes expenditures funded by federal/state grants or those used to generate a federal tax credit.
  • Qualified new rail infrastructure expenditures: Expenditures for new track infrastructure (industrial leads, switches, spurs, sidings, loading docks, and transloading structures), engineering/site prep for servicing rail-served locations, expansion infrastructure for Class II/III railroads, and new track infrastructure serving rail-served customer locations.
  • Qualified project location: An Enterprise Zone or a county in Illinois with population not exceeding 500,000.
  • Rail-served customer location: A customer facility connected to rail via new or expanded rail infrastructure.
  • Taxpayer: A qualified applicant (see below) that is subject to Illinois income tax or a tax-exempt entity owned by a port or governmental entity.

Who can apply (qualified applicants)

  • (1) A railroad company in Illinois classified by the Surface Transportation Board as Class II or Class III that incurs qualified railroad expenditures.
  • (2) An owner or lessee of a rail siding, industrial spur, or industry track located on or adjacent to a Class II/III railroad or in a qualified project location that incurs qualified new rail infrastructure expenditures.

Caps and limits

  • Aggregate statewide credit cap for qualified railroad expenditures: $9,000,000 per year.
  • Aggregate statewide credit cap for qualified new rail infrastructure expenditures: $10,000,000 per year.
  • Per-project/sub-location limits:
    • Qualified railroad expenditures: capped at number of miles of Class II/III track owned/leased in Illinois at year-end times $5,000 per mile.
    • Qualified new rail infrastructure expenditures: the lesser of 50% of qualified new rail expenditures per rail-served location or $2,000,000 per rail-served location.
  • Credits cannot reduce tax liability below zero; any unused credit can be carried forward for up to 5 years (applied to earliest year with tax liability).

Application and certification process

  • For qualified railroad expenditures:
    • Taxpayers apply after completing the project.
    • Department of Commerce and Economic Opportunity (DCEO) certifies eligibility and issues a tax credit certificate.
  • For qualified new rail infrastructure expenditures:
    • Prec Certification required before construction. DCEO provides precertification if the project meets requirements.
    • Quarterly application windows for precertification; awards subject to annual caps and prioritization rules.
    • Prioritization criteria emphasize projects with critical rail access to industrial ports/parks, projects supporting value-added sectors, Enterprise Zone/qualified economic development areas, and projects with significant private capital investment or job creation.
    • Unused quarterly authority carries forward within the same fiscal year; any unused by year-end expires.
    • Prec certifications are valid 12 months; construction must start within 12 months of precertification.
    • Post-construction, the taxpayer must notify DCEO and provide documentation to calculate and certify the final credit.
  • Transferability: Credits may be transferred by written agreement; transferees and transferors receive a transfer certificate.
  • Pass-through entities: S corporation pass-throughs treated under Section 251 rules.

Sunset and effective date

  • Sunset provision: No new precertifications after December 31, 2036.
  • Effective date: Immediate upon becoming law (as introduced).

Who would be affected

  • Illinois Class II and Class III railroads and their owners/lessees.
  • Rail-served customers and industrial locations that are connected to or will connect to rail networks in Illinois, particularly within Enterprise Zones or small-population counties (≤ 500,000).
  • Taxpayers eligible for Illinois income tax credits related to railroad maintenance/reconstruction and new rail infrastructure investments.
  • Local and regional economic development efforts tied to rail access and freight infrastructure.

Procedural and timeline notes

  • Applies to taxable years 2026–2035 (begins after Jan 1, 2026; ends before Jan 1, 2036).
  • Annual statewide credit caps exist for each credit category; individual projects have separate caps.
  • Precertification is required for new rail infrastructure before construction; rolling quarterly windows and prioritization process.
  • Department rules and form requirements to be established; final details will be in Department of Commerce and Economic Opportunity rules.

Bottom line

SB3765 creates a targeted, time-limited tax credit program to stimulate modernization and expansion of short line railroads and rail-served infrastructure in Illinois, with specific caps, application processes, and priority criteria intended to spur private investment, improve supply chain resilience, and support economic development in designated areas.

Compiled from official sources — confirm details with the bill’s official record.

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