It seems to me to be pointless to tax anything requiring a subsidy, as
that just creates a money-go-round, as it were.

That's the distortion argument. If you charge people the same tax on
everything they buy, it has no relative effect on their choices.

Also, I suspect that in most railways, some things are more subsidized
than others, and it'd add a lot of complexity to try to figure out
what to tax and what not to.

Concrete example: the Canadian government pays GST or HST the same as
any other purchaser when they buy stuff. That way, the vendors don't
have to deal with special cases and the tax the vendors collect is N%
of sales.

R's,
John