Tax Issue Derails Lehigh Gorge Excursions Again

The Lehigh Gorge Scenic Railway. Courtesy Photo. 

Tax Issue Derails Lehigh Gorge Excursions Again

By Eric Berger

While officials with both the Reading & Northern and the Borough of Jim Thorpe, Pa. appear eager for the short line to resume operating its Lehigh Gorge Scenic Railway excursions out of the eastern Pennsylvania community, an agreement to resolve the tax dispute that led R&N to end operations there last year hit a snag in early May.

At the heart of the issue is a 50-cent per ticket “amusement tax” which the Borough of Jim Thorpe has been trying to collect from the railroad since 2011. The railroad was added to the roll of delinquent accounts in 2017, leading to a judgment against it in municipal court and an appeal to Carbon County Court of Common Pleas in 2019.  The railroad maintains that it is a federally regulated freight railroad and thus is not subject to municipal taxation and that its LGSR trains are operated as a public service, not as a profit maker.  

As a result of the dispute, R&N announced last November that it would no longer operate passenger trains from Jim Thorpe. The railroad followed through on its promise in December by omitting the city from its popular Santa Clause trains.

Meetings between city officials and the railroad followed in January, concluding with an announcement that the city would drop its lawsuit and exempt the railroad from the tax and the railroad would resume LGSR operations in Jim Thorpe. While the precise economic impact of the Santa Claus trains on the local economy can only be estimated, city officials cited input from several local businesses as factors in their decision to accept the railroad’s terms. 

Though an ordinance to exempt the railroad and other actions to implement the agreement were still pending in February, R&N resumed LGSR operations in conjunction with the Jim Thorpe WinterFest as a show of good faith.  While a statewide shut down due to the COVIC-19 pandemic precluded any activity this spring, the railroad was making plans for post-shutdown operations when it learned in April that the city was unwilling to enter a binding agreement to permanently drop the current litigation and not pursue future legal action to collect the amusement tax. It responded with an email to the borough reiterating its position that such action was a precondition for the return of LGSR trains.

A May 1 letter from the borough to residents and businesses said it drafted an ordinance which provides the requested exemption from the local tax, but claimed the railroad wants an agreement that says it “does not owe the amusement tax, has never owed the amusement tax and will never owe the amusement tax. The city stated that it could not legally agree to those terms.  

That prompted a quick rebuttal from R&N President Wayne Michel, who in an email to Jim Thorpe’s borough manager and borough council president said, “Simply put, R&N needs an actual agreement with the current borough council that there will be a permanent cessation of legal actions seeking to recover any form of amusement tax from R&N or LGSR  for any period of time up until the date of our settlement. Contrary to your attorney’s suggestion, we are not asking this council to bind future councils. We are asking this Council to bind itself and to make clear that the prior lawsuit is dropped with prejudice, meaning it cannot be refilled.”

With both sides declaring that they want the trains back in Jim Thorpe, the impasse could be short-lived, but for now, the excursion railroad is maintaining a social distance from Jim Thorpe.  In the meantime, R&N is making plans to operate the LGSR from other locations on its system.

“For our part, we are getting our equipment ready to provide train service to any and all communities that welcome us,” Michel said.

This article was posted on: May 13, 2020