RAILROAD MOD CREDIT

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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.
LRB104 20697 HLH 34197 b

A BILL FOR

SB3765
LRB104 20697 HLH 34197 b
1

AN ACT concerning revenue.

2

Be it enacted by the People of the State of Illinois,
3
represented in the General Assembly:

4

Section 1.
Short title.
This Act may be cited as the
Short
5
Line Railroad Modernization Act.

6

Section 5.
Definitions.
As used in this Act:
7

"Credit" means the Short Line Railroad Infrastructure
8
Modernization Credit awarded under this Act.
9

"Department" means the Department of Commerce and Economic
10
Opportunity.
11

"Qualified applicant" means:
12

(1) a railroad company located in whole or in part in
13

Illinois that is classified by the United States Surface
14

Transportation Board as a Class II or Class III railroad
15

and that makes qualified railroad expenditures; or
16

(2) an owner or lessee of a rail siding, industrial
17

spur, or industry track that is located (A) on or adjacent
18

to a Class II or Class III railroad in Illinois or (B) in a
19

qualified project location if the applicant makes
20

qualified new rail infrastructure expenditures.
21

"Qualified new rail infrastructure" means:
22

(1) new track infrastructure such as industrial leads,
23

switches, spurs, sidings, rail loading docks, and

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transloading structures;
2

(2) infrastructure necessary for engineering and site
3

preparation involved with servicing rail-served customer
4

locations;
5

(3) infrastructure associated with the expansion of a
6

Class II or Class III railroad; and
7

(4) new track infrastructure constructed to serve
8

rail-served customer locations located in a qualified
9

project location.
10

"Qualified project location" means an Enterprise Zone or a
11
county in Illinois with a population of not more than 500,000
12
inhabitants.
13

"Qualified railroad expenditures" means gross expenditures
14
for maintenance, reconstruction, or replacement of existing
15
railroad infrastructure that is owned or leased by a Class II
16
or Class III railroad and is located partly or wholly in
17
Illinois, including track, roadbed, bridges, crossings,
18
signals, industrial leads and sidings, and track related
19
structures. "Qualified railroad expenditures" does not include
20
expenditures that are used to generate a federal tax credit or
21
that are funded by a State or federal grant.
22

"Rail-served customer location" means a location in the
23
State at which qualified new rail infrastructure will be
24
constructed to connect a customer's facility to a rail line
25
either by building a new facility with rail access or by
26
connecting an existing facility to the rail network.

SB3765
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LRB104 20697 HLH 34197 b
1

"Taxpayer" means a qualified applicant that is (i) subject
2
to subsections (a) and (b) of Section 201 of the Illinois
3
Income Tax Act or (ii) a tax-exempt entity that is owned by a
4
port or a governmental entity.

5

Section 10.
Purpose.
The Illinois General Assembly finds
6
that a modern, efficient, and safe rail system is vital to
7
Illinois' economic competitiveness, supply chain resilience,
8
and environmental goals. Through targeted investment in short
9
line railroads, industrial sidings, and new freight rail
10
infrastructure, this Act is intended to spur private sector
11
development, strengthen rural and urban connectivity, and
12
ensure that Illinois remains a national leader in
13
transportation and logistics. This Act will support
14
manufacturing, agriculture, renewable energy, and emerging
15
industries by lowering shipping costs, improving access to
16
global markets, and expanding multimodal opportunities. By
17
adopting forward-looking infrastructure tools, Illinois will
18
create good-paying jobs, attract long-term investment, reduce
19
highway congestion, and decrease greenhouse gas emissions.
20
Illinois must aggressively modernize its rail system so that
21
businesses and communities can compete and thrive against
22
domestic and foreign competitors.

23

Section 15.
Allowable credits; limitations.
24

(a) For taxable years that begin after January 1, 2026 and

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begin before January 1, 2036, a taxpayer is entitled to a
2
credit against the taxes imposed under subsections (a) and (b)
3
of Section 201 of the Illinois Income Tax Act equal to:
4

(1) the taxpayer's:
5

(A) qualified railroad expenditures; and
6

(B) qualified new rail infrastructure
7

expenditures; multiplied by
8

(2) 50%.
9

(b) The amount of a tax credit allowed under subsection
10
(a) shall not exceed the following:
11

(1) For qualified railroad expenditures, the product
12

of:
13

(A) the number of miles of Class II or Class III
14

railroad track owned or leased by the taxpayer in
15

Illinois at the close of the taxable year; multiplied
16

by
17

(B) $5,000.
18

(2) For qualified new rail infrastructure
19

expenditures, the lesser of:
20

(A) 50% of the qualified new rail expenditures for
21

each rail-served customer location completed by the
22

taxpayer in the taxable year; or
23

(B) $2,000,000 per rail-served customer location.
24

Notwithstanding any other provision of law, an expenditure
25
shall be classified as either a qualified railroad expenditure
26
or a qualified new rail infrastructure expenditure, but not

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LRB104 20697 HLH 34197 b
1
both.
2

(c) The aggregate amount of tax credits permitted in a
3
taxable year under this Section for all taxpayers shall not
4
exceed:
5

(1) for qualified railroad expenditures allowed under
6

this Act, $9,000,000; and
7

(2) for qualified new rail infrastructure expenditures
8

allowed under this Act, $10,000,000.
9

(d) In no event shall a credit under this Section reduce
10
the taxpayer's liability to less than zero. If the amount of
11
the credit exceeds the tax liability for the year, the excess
12
may be carried forward and applied to the tax liability of the
13
5 taxable years following the excess credit year. The credit
14
shall be applied to the earliest year for which there is tax
15
liability. If there are credits from more than one tax year
16
that are available to offset tax liability, the earlier credit
17
shall be applied first.

18

Section 20.
Application; qualified railroad expenditures.
19

(a) A taxpayer wishing to claim a tax credit under this
20
Section must apply to the Department after completion of the
21
project for which qualified railroad expenditures were
22
incurred. The Department shall prescribe the form and manner
23
of the application, which must include:
24

(1) the number of miles of railroad track owned or
25

leased by the taxpayer in Illinois; and

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1

(2) a description and certification of the amount of
2

the taxpayer's qualified railroad expenditures.
3

(b) The Department shall evaluate a taxpayer's eligibility
4
for a tax credit under this Act.
5

(c) The Department shall certify the eligibility of a
6
taxpayer that meets the requirements for a tax credit under
7
this Act.
8

(d) Upon satisfactory review of the application, the
9
Department shall issue a tax credit certificate to the
10
taxpayer stating the amount of the tax credit earned in the
11
taxable year to which the taxpayer is entitled.

12

Section 25.
Application; qualified new rail infrastructure
13
expenditures.
14

(a) A taxpayer wishing to claim a tax credit under this
15
Section must apply to the Department for precertification
16
prior to commencing construction, in the form and manner
17
prescribed by the Department. Upon review, and if the
18
Department determines that the application conforms to the
19
requirements of this Act and the rules adopted under this Act,
20
the Department shall issue a precertification letter
21
authorizing the taxpayer to proceed with the project.
22

(b) The Department shall establish quarterly application
23
windows for precertification requests. Applications received
24
during a quarterly application window shall be reviewed
25
together, and credits shall be awarded to taxpayer meeting

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LRB104 20697 HLH 34197 b
1
statutory qualifications, subject to the caps specified in
2
Section 15.
3

(c) If eligible applications in a quarterly period would
4
cause total awards for the fiscal year to exceed the cap in
5
subsection (c) of Section 15, the Department shall apply the
6
prioritization criteria in subsection (d) of this Section.
7
Credits shall be awarded until the annual cap is fully used.
8

(d) The Department shall give priority to projects that:
9

(1) provide critical rail access to industrial parks,
10

ports, or economic development projects locating adjacent
11

to rail; serve businesses in value-added agriculture,
12

advanced manufacturing, supply chain/distribution
13

solutions, or environmentally friendly or sustainable
14

manufacturers, including those reducing carbon emissions
15

or utilizing renewable energy;
16

(2) located in qualified economic development area or
17

Enterprise Zone designated by the State;
18

(3) demonstrate the facilitation of significant
19

private capital investment, job creation, or strategic
20

economic benefits to the State;
21

(e) If aggregate funding authority under subsection (c) of
22
Section 15 is not fully used in any quarterly period, the
23
unused authority shall automatically carry forward to the next
24
application period within the same fiscal year. Any funding
25
authority not awarded by the close of the fiscal year shall
26
expire.

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LRB104 20697 HLH 34197 b
1

(f) A precertification is valid for 12 months after
2
project award. A project that has been pre-certified must
3
commence construction within 12 months of the date of the
4
precertification award.
5

(g) Upon project completion, the taxpayer must notify the
6
Department and provide necessary documentation as required by
7
the Department to calculate the tax credit and certify project
8
completion. The Department shall certify the eligibility of a
9
taxpayer that meets the requirements for a tax credit under
10
this Act.
11

(h) Upon satisfactory review of the final application and
12
supporting documentation, the Department shall issue a tax
13
credit certificate to the taxpayer stating the amount of tax
14
credit earned in the taxable year in which the taxpayer is
15
entitled.

16

Section 30.
Transferability.
A taxpayer may transfer the
17
tax credit awarded under this Act by written agreement. A
18
transfer of credits earned under this Act shall be made, in
19
accordance with rules adopted by the Department, by the
20
taxpayer earning the credits at any time after certification
21
and before expiration of the credit. The Department shall
22
issue a certificate of transfer to each transferor and
23
transferee, identifying the amount of the credit transferred.
24
The transfer certificate shall be attached to the transferor's
25
and transferee's income tax return under the Illinois Income

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LRB104 20697 HLH 34197 b
1
Tax Act.

2

Section 35.
Pass-through entities.
For partners and
3
shareholders of Subchapter S corporations, the provisions of
4
Section 251 of the Illinois Income Tax Act shall apply with
5
respect to the credit under this Act.

6

Section 40.
Rulemaking.
The Department shall adopt rules
7
for the implementation of this Act.

8

Section 45.
Sunset.
The Department shall not enter into
9
any new agreements under the provisions of this Act after
10
December 31, 2036.

11

Section 900.
The Illinois Income Tax Act is amended by
12
adding Section 246 as follows:

13

(35 ILCS 5/246 new)
14

Sec. 246.
Short Line Railroad Modernization Act.
For
15
taxable years that begin after January 1, 2026 and begin
16
before January 1, 2036, a taxpayer that qualifies for a credit
17
against the taxes imposed by subsections (a) and (b) of
18
Section 201 under the Short Line Railroad Modernization Act is
19
entitled to a credit as provided in that Act.

20

Section 999.
Effective date.
This Act takes effect upon
21
becoming law.

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