Speeding Towards Tax Reform

by Mark Phillips

For many years, representatives from Indurante & Associates have been a part of the Railway Supply Institute (RSI) State Tax Committee, a group of company representatives dedicated to ensuring fair and informed tax policy for private rail car owners and lessees.

Over the last two years, the committee has been working with the Nebraska Department of Revenue to revise their allocation process in the property tax assessment of private rail cars.  Nebraska had used miles to miles (NE miles vs total system miles) to determine the average speed for the individual car types (box, flat, hopper, tank…etc.) in a fleet in their calculations to determine how much of the depreciated fleet value should be allocated to the state for taxation.  In addition, Nebraska allows for a rail car company to submit a speed study for any car type in their fleet if the company believes the default allocation calculation does not accurately reflect the true speed that their cars traveled through Nebraska.  If the speed study shows the car type in question traveled through the state at a higher speed than what they originally calculated, the state would replace the default speed calculation with the speed from the study.  The higher speed would result in a lower allocation percentage to Nebraska due to the shorter time the cars would have been active within the state, which in turn would result in tax savings in Nebraska for the company.  This usually results in significant tax savings for a company over the three-year period the study remains in effect.

Although the approved use of speed studies is a useful tool to help a company make sure that their rail car fleet is not over-taxed, it did have one glaring issue.  To compile the necessary information for a speed study, a company must have a database of car location messages (CLMs) to determine the amount of time a car was located within Nebraska along with the number of miles traveled during that time to determine the average miles per hour the car was traveling.  If a company does not already have the necessary CLMs for a speed study in-house, they would have to purchase them from an outside source, typically costing upwards of $10,000 per car type to get the necessary information.  The problem with this method centers around the small to medium-sized rail car companies.  If a smaller company did not generate enough tax dollars over the three-year period to justify spending that amount of money to prepare a speed study, they would have to accept the default Nebraska allocation which would result in them being over-taxed in relation to the companies that have the resources to submit a study.  This was the crux of the RSI State Tax Committee’s discussions on how to propose a remedy for this to Nebraska.

After compiling the historical data from all the speed studies submitted by the Committee’s members, we were able to put together a list of all the average speeds run by the different car types operated by the members’ fleets.  We decided that it would be beneficial to all private rail car companies that have operations in Nebraska if we presented this information to the Department of Revenue to have them re-examine how to be fairer and more equitable in their valuation of all rail car fleets taxed in Nebraska going forward.

Ultimately, the Department agreed with our findings and a change in methodology is prudent beginning with the 2025 tax year.  They decided to equalize non-speed study companies with companies that have submitted speed studies.  To achieve this, the Department will annually calculate an average speed for each type of car based on a representative sample of the most current speed studies submitted. Companies previously not able to prepare and submit a speed study will gain the benefit of an allocation adjustment based on the average speed from all the submitted speed studies.

This was a big win for the RSI State Tax Committee, as this change in methodology will enable the smaller rail car companies with limited budgets to gain the benefit of an average speed study to reduce their tax liabilities.  

Indurante & Associates is very proud to have been a part of the process to enact such a sweeping change to the Nebraska assessment methodology, which will prove to be financially beneficial to not only our customers, but to the private rail car industry as a whole.