SB3765 104TH GENERAL ASSEMBLY

LRB104 20697 HLH 34197 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
SB3765

Introduced 2/5/2026, by Sen. Michael W. Halpin

SYNOPSIS AS INTRODUCED:

New Act
35 ILCS 5/246 new

Creates the Short Line Railroad Modernization Act. Creates an income tax credit for taxpayers that incur qualified railroad expenditures or qualified new rail infrastructure expenditures. Sets forth the amount of the credit and limitations on the amount of the credit that may be awarded. Amends the Illinois Income Tax Act to make conforming changes. Effective immediately.

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Short Line Railroad Modernization Act.

Section 5. Definitions. As used in this Act:

"Credit" means the Short Line Railroad Infrastructure Modernization Credit awarded under this Act.

"Department" means the Department of Commerce and Economic Opportunity.

"Qualified applicant" means:

(1) a railroad company located in whole or in part in Illinois that is classified by the United States Surface Transportation Board as a Class II or Class III railroad and that makes qualified railroad expenditures; or

(2) an owner or lessee of a rail siding, industrial spur, or industry track that is located (A) on or adjacent to a Class II or Class III railroad in Illinois or (B) in a qualified project location if the applicant makes qualified new rail infrastructure expenditures.

"Qualified new rail infrastructure" means:

(1) new track infrastructure such as industrial leads, switches, spurs, sidings, rail loading docks, and transloading structures;

(2) infrastructure necessary for engineering and site preparation involved with servicing rail-served customer locations;

(3) infrastructure associated with the expansion of a Class II or Class III railroad; and

(4) new track infrastructure constructed to serve rail-served customer locations located in a qualified project location.

"Qualified project location" means an Enterprise Zone or a county in Illinois with a population of not more than 500,000 inhabitants.

"Qualified railroad expenditures" means gross expenditures for maintenance, reconstruction, or replacement of existing railroad infrastructure that is owned or leased by a Class II or Class III railroad and is located partly or wholly in Illinois, including track, roadbed, bridges, crossings, signals, industrial leads and sidings, and track related structures. "Qualified railroad expenditures" does not include expenditures that are used to generate a federal tax credit or that are funded by a State or federal grant.

"Rail-served customer location" means a location in the State at which qualified new rail infrastructure will be constructed to connect a customer's facility to a rail line either by building a new facility with rail access or by connecting an existing facility to the rail network.

"Taxpayer" means a qualified applicant that is (i) subject to subsections (a) and (b) of Section 201 of the Illinois Income Tax Act or (ii) a tax-exempt entity that is owned by a port or a governmental entity.

Section 10. Purpose. The Illinois General Assembly finds that a modern, efficient, and safe rail system is vital to Illinois' economic competitiveness, supply chain resilience, and environmental goals. Through targeted investment in short line railroads, industrial sidings, and new freight rail infrastructure, this Act is intended to spur private sector development, strengthen rural and urban connectivity, and ensure that Illinois remains a national leader in transportation and logistics. This Act will support manufacturing, agriculture, renewable energy, and emerging industries by lowering shipping costs, improving access to global markets, and expanding multimodal opportunities. By adopting forward-looking infrastructure tools, Illinois will create good-paying jobs, attract long-term investment, reduce highway congestion, and decrease greenhouse gas emissions. Illinois must aggressively modernize its rail system so that businesses and communities can compete and thrive against domestic and foreign competitors.

Section 15. Allowable credits; limitations.

(a) For taxable years that begin after January 1, 2026 and begin before January 1, 2036, a taxpayer is entitled to a credit against the taxes imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act equal to:

(1) the taxpayer's:

(A) qualified railroad expenditures; and

(B) qualified new rail infrastructure expenditures; multiplied by

(2) 50%.

(b) The amount of a tax credit allowed under subsection (a) shall not exceed the following:

(1) For qualified railroad expenditures, the product of:

(A) the number of miles of Class II or Class III railroad track owned or leased by the taxpayer in Illinois at the close of the taxable year; multiplied by

(B) $5,000.

(2) For qualified new rail infrastructure expenditures, the lesser of:

(A) 50% of the qualified new rail expenditures for each rail-served customer location completed by the taxpayer in the taxable year; or

(B) $2,000,000 per rail-served customer location.

Notwithstanding any other provision of law, an expenditure shall be classified as either a qualified railroad expenditure or a qualified new rail infrastructure expenditure, but not both.

(c) The aggregate amount of tax credits permitted in a taxable year under this Section for all taxpayers shall not exceed:

(1) for qualified railroad expenditures allowed under this Act, $9,000,000; and

(2) for qualified new rail infrastructure expenditures allowed under this Act, $10,000,000.

(d) In no event shall a credit under this Section reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is tax liability. If there are credits from more than one tax year that are available to offset tax liability, the earlier credit shall be applied first.

Section 20. Application; qualified railroad expenditures.

(a) A taxpayer wishing to claim a tax credit under this Section must apply to the Department after completion of the project for which qualified railroad expenditures were incurred. The Department shall prescribe the form and manner of the application, which must include:

(1) the number of miles of railroad track owned or leased by the taxpayer in Illinois; and

(2) a description and certification of the amount of the taxpayer's qualified railroad expenditures.

(b) The Department shall evaluate a taxpayer's eligibility for a tax credit under this Act.

(c) The Department shall certify the eligibility of a taxpayer that meets the requirements for a tax credit under this Act.

(d) Upon satisfactory review of the application, the Department shall issue a tax credit certificate to the taxpayer stating the amount of the tax credit earned in the taxable year to which the taxpayer is entitled.

Section 25. Application; qualified new rail infrastructure expenditures.

(a) A taxpayer wishing to claim a tax credit under this Section must apply to the Department for precertification prior to commencing construction, in the form and manner prescribed by the Department. Upon review, and if the Department determines that the application conforms to the requirements of this Act and the rules adopted under this Act, the Department shall issue a precertification letter authorizing the taxpayer to proceed with the project.

(b) The Department shall establish quarterly application windows for precertification requests. Applications received during a quarterly application window shall be reviewed together, and credits shall be awarded to taxpayer meeting statutory qualifications, subject to the caps specified in Section 15.

(c) If eligible applications in a quarterly period would cause total awards for the fiscal year to exceed the cap in subsection (c) of Section 15, the Department shall apply the prioritization criteria in subsection (d) of this Section. Credits shall be awarded until the annual cap is fully used.

(d) The Department shall give priority to projects that:

(1) provide critical rail access to industrial parks, ports, or economic development projects locating adjacent to rail; serve businesses in value-added agriculture, advanced manufacturing, supply chain/distribution solutions, or environmentally friendly or sustainable manufacturers, including those reducing carbon emissions or utilizing renewable energy;

(2) located in qualified economic development area or Enterprise Zone designated by the State;

(3) demonstrate the facilitation of significant private capital investment, job creation, or strategic economic benefits to the State;

(e) If aggregate funding authority under subsection (c) of Section 15 is not fully used in any quarterly period, the unused authority shall automatically carry forward to the next application period within the same fiscal year. Any funding authority not awarded by the close of the fiscal year shall expire.

(f) A precertification is valid for 12 months after project award. A project that has been pre-certified must commence construction within 12 months of the date of the precertification award.

(g) Upon project completion, the taxpayer must notify the Department and provide necessary documentation as required by the Department to calculate the tax credit and certify project completion. The Department shall certify the eligibility of a taxpayer that meets the requirements for a tax credit under this Act.

(h) Upon satisfactory review of the final application and supporting documentation, the Department shall issue a tax credit certificate to the taxpayer stating the amount of tax credit earned in the taxable year in which the taxpayer is entitled.

Section 30. Transferability. A taxpayer may transfer the tax credit awarded under this Act by written agreement. A transfer of credits earned under this Act shall be made, in accordance with rules adopted by the Department, by the taxpayer earning the credits at any time after certification and before expiration of the credit. The Department shall issue a certificate of transfer to each transferor and transferee, identifying the amount of the credit transferred. The transfer certificate shall be attached to the transferor's and transferee's income tax return under the Illinois Income Tax Act.

Section 35. Pass-through entities. For partners and shareholders of Subchapter S corporations, the provisions of Section 251 of the Illinois Income Tax Act shall apply with respect to the credit under this Act.

Section 40. Rulemaking. The Department shall adopt rules for the implementation of this Act.

Section 45. Sunset. The Department shall not enter into any new agreements under the provisions of this Act after December 31, 2036.

Section 900. The Illinois Income Tax Act is amended by adding Section 246 as follows:

(35 ILCS 5/246 new)

Sec. 246. Short Line Railroad Modernization Act. For taxable years that begin after January 1, 2026 and begin before January 1, 2036, a taxpayer that qualifies for a credit against the taxes imposed by subsections (a) and (b) of Section 201 under the Short Line Railroad Modernization Act is entitled to a credit as provided in that Act.

Section 999. Effective date. This Act takes effect upon becoming law.