At this time, businesses must use freight rail transportation along Union Pacific’s Craig Branch Line to be eligible for the Freight Rail Tax Credit. The Craig Branch Line runs through the Yampa Valley, which is a coal transition community including Moffat, Rio Blanco, and Routt counties.

The Craig Branch Line branches from the mainline in Bond, runs north through Phippsburg to Steamboat Springs, and then west through Hayden and past Craig.

• Craig Subdivision MP 168 (Phippsburg) to MP 230.1 (Craig)
• Moffat Tunnel Subdivision MP 128.8 (Center Bond) to MP 168 (Phippsburg)

The Colorado Department of Transportation (CDOT) will review rail lines every year to determine which ones are at serious risk of becoming unused or abandoned due to a decrease in coal traffic and thus may be added as eligible freight rail lines for this tax credit. 

To qualify for this tax credit, a business must meet all of the following criteria:

1. Taxable Presence: Be subject to Colorado income tax.
   1. Colorado imposes a tax on the income of any C corporation that is doing business in Colorado. The tax applies generally to every C corporation that is organized or commercially domiciled in Colorado and to every C corporation that has property, payroll, or sales in Colorado in excess of certain thresholds.
   2. For more information, refer to the Corporate Income Tax Guide from Colorado’s Department of Revenue.
   3. As long as the business is subject to Colorado income tax, it does not need to be headquartered or registered in Colorado.
2. Legal Structure: Operate as a corporation, partnership, LLC, or other recognized business entity.
3. Industry Focus: Be involved in or impact one or more of these sectors: manufacturing, agriculture, repairing/refurbishing, recycling, consumer product distribution, or energy production.
4. Freight Rail Engagement: Demonstrate regular demand for substantial new or increased use of freight rail transportation, specifically:
   1. Freight must either originate or terminate at a business location in a coal transition community (Routt, Moffat, and Rio Blanco counties).
   2. Freight must travel on the Craig branch line that runs through the Yampa Valley, which the Colorado Department of Transportation (CDOT) has determined is at risk of inactivity or abandonment due to a lack of demand resulting from coal transition. 
   3. Regular demand means use of freight rail transportation multiple times a year. One-time demand does not qualify.
   4. Substantial use means that the Railroad would agree to provide rail service and transport the freight.
   5. For businesses with existing freight service along the Craig Branch line, there must be an expansion in the volume of freight transported by rail to be eligible. Only the increased costs are eligible to be Qualified Expenditures for the tax credit.
5. Engaging with the Railroad (Union Pacific): A business must be in discussions with the Railroad to negotiate rail service, or have a track use agreement in place.
   1. Written confirmation from Union Pacific (email or letter) is required to document the business status (assigned a sales associate, creating a rail design, approved rail design, negotiating rates, executed track agreement, etc.)

"Qualified expenditure" refers to the expenses a business pays to use new or increased freight rail transportation. This program defines freight rail transportation as the point when goods are loaded onto a rail car.

As part of your reservation application, you must submit a Qualified Expenditures Estimate (Google Sheets) for each tax year for which you are requesting tax credits. Reservations for the tax credits will be up to 75% of eligible Qualified Expenditures.

Allowable expenses include:

• Freight Costs charged by Railroad: Base Freight Rate (Tariff rates or Contract rates), Fuel Surcharges, Accessorial Charges. Freight Transportation Costs are not limited to Colorado and are eligible all along the route to be Qualified Expenditures.
• Transloading Costs: Costs incurred for transloading services onto or off of railcars at a site served by the Craig Branch Line in the Yampa Valley.
• Rail Infrastructure Capital Costs: Nominal net expenditure for capital costs such as property, side track, and fixed location rail equipment located at a site served by the Craig Branch Line in the Yampa Valley.

Unallowable expenses include:

• Costs for freight rail use that already existed before a business was approved into the program.
• Costs that happened before a business was approved into the program.
• Business costs that happen before goods are loaded onto a rail car (for example, the cost to transport goods from a warehouse to the train loading site is not eligible).
• Labor costs, such as employee salaries and benefits.
• Capital costs that are not eligible for the tax credit include: any capital costs that are reimbursable by the Railroad, any rolling stock, or any capital located outside of a coal transition community in Colorado.

If you have questions about the eligibility of an expense category not listed here, please contact the Program Manager.

As part of your reservation application, you must submit a Freight Rail Use Plan (Google Doc) (the “Plan”) to document your anticipated use of freight rail transportation for the tax years in which you are requesting tax credits.

Your Plan should be a maximum of 10 pages and be guided by the four requirements listed below. If you wish to also upload supporting documentation (e.g., business plans, financial projections, etc.) to emphasize a point made in the Plan, please reference that document in your Plan and specify where the relevant information can be found in the document.

Your Plan must include all four of the following requirements, each of which the Freight Rail Use Plan Template and Instructions ask about in greater detail:

1. Specify regular, frequent, ongoing, and sustainable long-term freight rail use.
2. Provide substantial economic development benefits.
3. Demonstrate financial viability.
4. Incorporate environmentally responsible and sustainable use of resources.

Execute your Freight Rail Use Plan

Execution means that you meet milestones for project commencement and yearly performance, as described in your Freight Rail Use Plan. You must meet these milestones to receive the tax credit reserved for each year.

Project Commencement: You must start your Freight Rail Use Plan within one and a half years (18 months) after the approval date of your tax credit reservation. A freight rail use plan is said to commence when any of the following happens:

• Your business purchases or signs a multi-year lease for a rail-served property along the Craig Branch Line in the Yampa Valley.
• Your business receives approval from Union Pacific for new rail infrastructure design.
• Your business begins side track construction or rehabilitation.
• Your business executes a track agreement with Union Pacific for rail services.
• Your business begins new or increased freight transportation use along the Craig Branch line.
• Other milestone occurs indicating the project has commenced, as agreed to by OEDIT.

Yearly Performance Milestones: At a minimum, provide at least one yearly performance milestone for each tax year that you are applying for. This could include, but is not limited to:

• Expansion of freight rail use by volume or frequency of shipments.
• New employee hires in Moffat, Routt, or Rio Blanco Counties.
• Growth or expansion of your business.
• Freight rail infrastructure investments in Moffat, Routt, or Rio Blanco Counties.

OEDIT will consider applications in the order they came in, but depending on the level of requests OEDIT reserves the right to prioritize plans that incentivize a diverse group of businesses and sectors to use the eligible rail lines.

Businesses may apply to reserve tax credits for between one to five tax years. If a business requires a reservation of more than five years, you may discuss an exception with the Program Manager.

OEDIT reserves the right to set the number for years for the reservation. Businesses are eligible to re-apply for a subsequent reservation if they have expanded freight rail use.

First, contact our Rural Opportunity Office (ROO) staff. ROO staff will assess each company’s eligibility before inviting a company to apply for the program.

1. Pre-app call: ROO staff to schedule a discussion or meeting to prove eligibility. Even if a project receives preliminary approval through this discussion or meeting, a freight rail use plan is not guaranteed to receive tax credit reservations for qualified expenditures. The pre-app call will review eligibility, by reviewing the following program requirements:
   1. Qualified Applicant
   2. Certified Freight Rail Use Plan
   3. Qualified Expenditures
2. Complete the reservation application in the OEDIT Salesforce Portal, and submit all application materials. ROO staff will give your company access to the Freight Rail Tax Credit Reservation Application in the OEDIT Salesforce portal. Please allow 24-48 hours to activate a new account.
   1. Reservation Application Questions (Google Doc), for review 
   2. You will need to submit the following documents with your application:
      1. Freight Rail Use Plan (Google Doc) template
      2. Qualified Expenditure Estimate (Google Sheets) template
3. Reservation of Tax Credits: We will review your reservation application with representatives from CDOT and OJT. All applicants will receive notification of tax credit reservation award decisions within 90 days of submitting their application via Salesforce. If approved, you must incur qualified expenses in the tax years for which you have been awarded tax credit reservations.
   1. OEDIT may reserve a tax credit for the benefit of a qualified applicant for any future tax year in an amount up to 75% of the applicant’s qualified expenditure estimate.
   2. OEDIT staff may recommend limits on the total reservation amount that may be approved for a single taxpayer in a given year, multiple years, or all years and may provide a recommendation to limit a total reservation amount for a specified freight rail use plan based on the economic impact anticipated for Colorado and the demand for tax credits through the program.
   3. If OEDIT reserves a tax credit for the benefit of a qualified applicant, OEDIT will notify the applicant in writing of the reservation and the amount reserved. 
   4. The reservation of a tax credit does not entitle the qualified applicant to the issuance of the tax credit certificate until the applicant complies with all of the requirements specified for the issuance of the tax credit certificate.
4. Reporting and Claiming Tax Credits: After you start your Freight Rail Use Plan, you will apply for an issuance of tax credits at the end of each tax year in which you have a tax credit reservation and have incurred Qualified Expenditures as described in your reservation.
   1. Complete the issuance application in the OEDIT Salesforce portal and submit all issuance application materials:
      1. Issuance Request Application Questions
      2. Worksheet demonstrating qualified expenditures
      3. A third-party audit letter completed by a Certified Public Accountant (CPA). The audit certifies that:
         1. The expenses associated with the freight rail use plan are outlined in the reservation application (costs outside of the approved plan and estimate cannot be submitted).
         2. The expenses were paid and incurred by the applicant.
         3. The expenses are categorized appropriately as eligible Qualified Expenditures following Colorado Revised Statute 39-22-563 and the Freight Rail Tax Credit program manual.
   2. Claim the tax credit
      1. Submit the tax credit certificate with your Colorado income tax return for the tax year in which you incurred Qualified Expenses.