A Shot In The Arm: How Rail-Served Properties Can Be An Antidote To A Volatile Industrial Economy

The industrial sector brings trillions of dollars to the U.S. annually, with manufacturing contributing more than $2.9T. However, with talks of tariffs leading to higher import costs for materials and machinery and supply chain disruptions, some industrial owners are searching for ways to reduce expenses and their tax burden.   

One solution to keep things moving is railroad distribution. The rail market operates on a privately funded and maintained infrastructure that reduces strain on taxpayer-funded roads and highways and is a more viable form of intermodal transportation to help move a larger cargo of goods across long distances. Railroads have a yearly economic impact of nearly $234B and contribute to 750,000 jobs throughout the U.S.

Shortline and industrial railroads, often referred to as terminal switching railroads, are usually located on the perimeter of larger accessed rail networks. These are focused on local industrial needs compared to the broader reach of larger Class I railroads. Fulcrum Rail Founder and Managing Partner Max Callahan said the owner-operators of industrial properties along these railroads are offering full-service logistics and warehousing, but unlike those on Class I railroads, they are paying a premium to do it.

Fulcrum Rail is a subsidiary of Fulcrum Enterprise Group, an advisory firm that focuses on providing tax relief for industrial businesses. Callahan said the firm is “on a mission” to reset tax liability for the smaller industrial operators along the rail network. At the core of its strategy is a central assessment, which can redesignate certain industrial properties as a railroad if it is actively used for the distribution of goods. This applies different tax metrics to the property, allowing owners to keep more capital within their business. 

In most states, while local assessments are handled by county assessors, a central assessment is managed by the State Department of Revenue, which determines at the state level the value of an entire network before allocating portions of the value to specific properties. A central railroad assessment works well for rail systems because these are properties that span multiple jurisdictions, not just functioning as a local property.  

Callahan explained that right now, no one really has an incentive to inform owner-operators about the benefits of a central assessment — the Class I operators facilitate critical freight movement, they are not generally involved in educating property stakeholders about potential tax advantages tied to rail designation, and the local assessor has little or no incentive to reduce the tax liability of any property owner in their jurisdiction.

“This is a niche within a niche,” he said. “We have many different avenues we use at Fulcrum Rail to reduce tax liability, but this is a relatively limited application for a specific population of property owners and users, and it has yet to gain widespread awareness or adoption.”

Despite the niche nature of this tax strategy, Callahan has made a significant investment of time and experience to develop the tools to go after it. 

“With a properly managed designation and assessment, we’re able to reduce tax liability sometimes as much as 75% without having to renegotiate property value,” Callahan said. “This has allowed us to save hundreds of thousands, and in some cases, millions of dollars in property tax liability annually for our clients once railroad designation is obtained.”

While most railroad designations are straightforward and do not require municipal approval, there are situations where creative problem-solving can create a win-win for all involved, Callahan added. Members of the Fulcrum team engineered such a solution when a client — facing development limitations due to hundreds of acres of unusable wetlands — was able to donate that land to the municipality to create an aviary and wildlife refuge. 

In exchange, the municipality granted a necessary variance that made railroad designation for their industrial site possible. This underscores that designation efforts are most successful when they benefit all stakeholders, as is most often the case.

“By aligning the interests of all parties, we created a path toward central assessment eligibility — supported by a broader commitment to maintaining a strong commercial relationship — unlocking long-term tax and operational advantages,” Callahan said.

More common to Fulcrum’s practice, Callahan shared a recent case in which the firm secured a property redesignation for a major beltline railroad operating in the greater Chicago industrial corridor, resulting in over $1M in tax savings on a single site through the application of a more favorable valuation formula.

Callahan said outcomes like these are not just about helping local businesses but building the economy up as a whole. He said that industrial property owners and users are pragmatists, and the first thing they are going to do with the added revenue they receive from these assessments is reinvest.

“The businesses that benefit from central/state assessment property tax savings are also the ones that are contributing to the local economy through numerous layers of revenue created for municipalities,” he said. “They’re reinvesting savings into local development, creating job growth and increased business activity through sales taxes, business licenses and other fees.”

Callahan added that along with increased business activity and tax revenue comes ancillary businesses, logistics companies, maintenance services and suppliers. 

Fulcrum Rail is helping to restore economic health to a vital network that handles the throughput of goods from one part of the country to the other and brings revenue from one community to another, he said. This is happening slowly as the company helps industrial operators rebalance their tax liability and create equity, something Fulcrum Rail is looking forward to doing on a larger scale within the next decade.

“It's like seeing a patient before a bypass, depleted and struggling, and then again after recovery, once vital resources and proper circulation have been reestablished,” Callahan said. “That is exactly what is happening with the businesses once they are able to reclaim the capital and put it back into their companies. It not only helps them, but this revitalization can support everybody in the surrounding community.”

This article was produced in collaboration between Fulcrum Rail and Studio B. Bisnow news staff was not involved in the production of this content.

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