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Tax Extension Will Benefit Rail Tie Production

Earlier this month, the U.S. Congress and President Obama hammered out a so-called “fiscal cliff” budget agreement, narrowly averting a significant tax increase on most taxpayers. Unless you’re a member of the American Short Line and Regional Railroad Association (ASLRRA), you probably weren’t aware that the deal contained an important tax provision – known as the 45G Infrastructure Tax Credit – that will not only benefit short line railroads but also wood treaters and companies like KMG which supply creosote to them.

Specifically, the 45G tax credit “gives short line [railroads] a credit of 50 cents for every dollar invested in track rehabilitation, up to a credit cap equal to $3,500 times the railroad’s total track miles,” according to the Railway Tie Association (RTA), an industry trade group. The 45G tax credit was authorized retroactively for 2012 and extended for 2013. (Read the RTA’s press release here.)

Because much of the infrastructure maintenance historically performed by short line railroads has involved replacing wooden rail ties, the 45G tax credit should stimulate additional rail tie purchases this year. In fact, the RTA forecasts that “at least 500,000 ties to as many as 1.2 million ties will be added to the market demand for 2013. This raises the total 2013 forecast for new wood tie demand to 23.3 million, on the low-end, to an upper-end of 24.0 million.”

As the nation’s leading merchant-based supplier of creosote – the primary preservative used to treat wooden rail ties – we are pleased to see the RTA’s more optimistic forecast for rail tie production this year. Historically, U.S. rail tie production has typically ranged between 18-22 million ties per year, so the RTA’s outlook for 23.3-24.0 million ties would be above historical norms.

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