> Does anyone know if there are any
> not-for-profit railroad museums that own
> seperate common carrier railroads to move
> freight?
> Thanks!
Under IRS section 501(c)(3) tax exempt rules, there is a support schedule which looks at the gross income of a nonprofit organization. If more than 30% of that GROSS income comes from unrelated business income, ie, regularly operated freight operations, the tax exempt status is put in jeopardy.
The Yakima Valley Rail & Steam Museum Association has operated both the Northern Pacific Railway Museum and the Toppenish, Simcoe & Western Railroad. Prior to 2001 the railroad was run with all volunteer members which resulted in the IRS considering the minimal freight operations to be part of the exempt purpose of the nonprofit group. As the railroad expanded freight operations from 20-40 cars a year to 988 revenue cars in 2001, it became necessary to hire full time personnell. As the revenues increased, the freight operation income began to dwarf the museum and tax exempt purpose of the organization. For these reasons the railroad freight operations have now been spun off into a wholly owned subsidary corporation. The subsidiary corporation can pay its profits as dividends to the parent nonprofit organization, but only the dividend is counted toward that 30% number in the support schedule. The for profit subsidiary has to be run separately, but at least the tax exempt status of the museum is no longer threatened.
Kind of a long winded explanation, but this is the reason the nonprofits with a significant freight operation will probably have to spin off the common carrier freight operation.
Toppenish, Simcoe & Western Railroad
Doug@nprymuseum.org