Today Governor Maura Healey signed legislation extending the eligibility deadlines for the Massachusetts Brownfields tax credits program by five years. The legislation had been included in the budget bill, which had recently been passed by the Massachusetts House and Senate. This result is a real boost for the program, which has continued to evolve since the Massachusetts Department of Revenue (DOR) issued regulations concerning the program two years ago. The 1998 Brownfields Bill, which created the program, was originally enacted to encourage the redevelopment of Brownfields in Massachusetts by providing both liability protection and financial incentives to new owners and operators of these sites.
What do taxpayers need to know about the Massachusetts Brownfields tax credits program and its newly extended effective dates? It is important to note at the outset that Brownfields tax credits are transferable. We have assisted several taxpayers who were not able to use the credits with respect to their own tax liability who then sold the credits, for which there continues to be a very strong market.
Massachusetts Brownfields Tax Credits Program Threshold Criteria
Pursuant to the 1998 Massachusetts Brownfields Bill, its subsequent amendments (the Statute), and the relatively recent DOR regulations, certain taxpayers have the ability to obtain tax credits as an incentive to cleanup and redevelop Massachusetts Brownfields sites. Below is an outline of the statutory criteria that must be satisfied for a project to qualify for Massachusetts Brownfields tax credits. Note that some of these terms have the meaning given to them in the Massachusetts Contingency Plan (the MCP), which is the Massachusetts regulatory program concerning the assessment and cleanup of contaminated sites.
Eligibility criteria include the following:
- The taxpayer must be an Eligible Person, as defined by Chapter 21E, and not the party that caused the pollution. An Eligible Person is defined by Chapter 21E, in part, as an owner or operator of a site who (a) would be liable under Chapter 21E solely because that party currently owns or operates the site, (b) did not cause or contribute to the contamination at the site, and (c) did not own or operate the site at the time of the contamination.
- The taxpayer must “commence and diligently pursue” the relevant environmental response action(s) on or before August 5, 2028. The entity planning to seek Brownfields tax credits must also be the party performing the relevant response actions.
- The “net response and removal costs” must be incurred between August 1, 1998, and January 1, 2029.
- A Permanent Solution or Remedy Operation Status for the site must be achieved and maintained in compliance with the MCP. This means that the cleanup must largely be completed, and the associated documentation must have been submitted to the Massachusetts Department of Environmental Protection (DEP) before the tax credits are available.
- If an Activity and Use Limitation (an AUL) is used to close out a site under the MCP, a credit of 25% of the net response and removal costs is permitted. If no AUL is used, the credit increases to 50% of the net response and removal costs, creating an incentive for additional cleanup to be performed.
- The relevant property must be owned or leased by the taxpayer for business purposes, and the property must be located within an “economically distressed area,” a term defined in the Statute.
- The net response and removal costs must be no less than (i.e., equal to or greater than) 15% of the assessed value of the property prior to “response action on or before remediation.” Defining what constitutes the “property” for this purpose can be challenging, as the boundaries of the relevant MCP site where remedial action is occurring are often different than those of the relevant tax parcel(s).
Eligible Costs for Brownfield Tax Credits
The Regulations at 830 CMR 63.38Q.1 set out a detailed list of “Eligible Costs” including:
- Costs to assess, remove, or remediate a release after notification to DEP so long as the same are necessary to achieve regulatory closure. This often includes costs to dispose of contaminated soil off-site or to treat impacted groundwater generated during construction dewatering. It is important to understand how DOR interprets and implements the word “necessary” in this context;
- Licensed Site Professional (LSP) costs incurred for remediation oversight and the preparation and filing of submittals to DEP regarding the release and its closure; and
- Attorney fees for compliance assistance for the purpose of achieving MCP closure (e.g., to assist in preparing an Activity and Use Limitation).
The Regulations also outline costs that are not considered “eligible,” as well as several examples of each. For example, inclusion of certain costs associated with building demolition and the removal and disposal of asbestos or asbestos-containing material from a building prior to its demolition may be eligible, but only if it is known in advance that the soil beneath the building must be accessed and remediated in order to achieve regulatory closure.
The Regulations also provide guidance that certain costs associated with the management of Historic Fill or “downtown urban brown” may not be eligible, which has important implications regarding how MCP submittals are prepared.
Application and Appeals Process
The Regulations require a number of components be submitted as part of an application to the DOR. These include a detailed narrative from an LSP supporting the necessity of the costs in order to achieve regulatory closure, documentation concerning the property’s assessed value and ownership history, construction plans and field logs, as well as a comprehensive table with invoice details concerning the costs being claimed.
In our experience, DOR often reaches out during its review process for additional information regarding the costs claimed. DOR may also have concerns regarding eligibility that are dealt with during its review. DOR may issue a full or partial allowance of credits, or it may deny the application in full once it has completed its review.
DOR must provide a written notification to the taxpayer explaining why a credit was denied and detailing the procedure for appealing the denial. An appeal, which must then be filed within 30 days of the date set forth in the notification of the denial, will generally lead to a further information request by DOR and can result in an informal negotiation concerning the amount of credits that may be issued.
Next Steps
It is great news that the eligibility timeframes for the Massachusetts Brownfields tax credit program have been extended for another five years. Although the requirements are numerous and can be complicated, if you have spent the money on a cleanup or are planning the redevelopment of a contaminated site and you qualify, then you should make sure to get the credits you deserve.
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