In August, Governor Healey signed the FY 2024 budget legislation extending for five years until January 1, 2029, the Brownfields Tax Credit that was set to expire at the end of 2023. Consequently, the redevelopment community now has five more years to complete response actions and generate a Brownfields Tax Credit of up to 50% of eligible costs under the Brownfields Tax Credit program. Although the Department of Revenue regulations and procedures for eligibility are not simple, the often high response costs associated with these sites and the immediate benefit of tax credits, justifies consideration.
After the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, M.G.L. c. 21E had the effect of discouraging redevelopment of legacy industrial sites in 1988, the legislature passed the An Act Relevant to Clean Up and Promoting Redevelopment of Contaminated Property, more commonly known as the “Brownfields Act”, including the Brownfields Tax Credit. The Tax Credit is designed to encourage the assessment and remediation of so-called “Brownfields” sites, particularly those contaminated properties within Economically Distressed Areas, that may not otherwise occur. In summary, an “eligible person” (i.e. is liable for site conditions merely as a current owner and who did not cause or contribute to the contamination or own or operate the site at the time of contamination) may be entitled to a tax credit of up to 50% of necessary response costs, which effectively subsidizes redevelopment.
According to the Worcester Business Development Corporation, “an analysis by Redevelopment Economics, a national leader in brownfield policy, concluded that every $1 of Massachusetts brownfields tax credits leads to $46.70 in other leveraged funds. Brownfields tax credits resulted in $1.99 billion in direct capital investments and $88.3 million in annual state tax revenues. BTC’s created 14,000 temporary jobs and 7,110 permanent jobs. Over ten years, the commonwealth recoups $7.74 in direct revenues for each $1 it expends in brownfields tax credits.”
James T. Curtis, PE, LSP, President of Cooperstown Environmental LLC, is an acknowledged authority on the program and has worked with more than half of the credit recipients since 2006. Mr. Curtis reports that since 2011, when the state began publicly reporting on credit recipients, 471 Brownfield credits have been issued, totaling more than $340 million. Many of the credit dollars awarded are for development projects in the Boston and Cambridge metropolitan areas, but an examination of the database shows that projects throughout the commonwealth have received reimbursements for cleanups large and small.
Curtis stated, “The Legislature has reapproved and extended the program again and again since its introduction in 1998 (originally for a three-year period), signaling the widespread popularity and effectiveness of the program in meeting the dual goals of spurring economic development and environmental remediation. While the Department of Revenue (DOR) in recent years has sought to narrow the scope of what qualifies as an eligible cost, the program still offers meaningful funding for qualified parties. However, it is more important than ever to ensure that all the program guidelines are followed and that means preparing before, during, and after the response action to ensure approval at the appropriate level.”
Here are some of the most relevant provisions of the Brownfields Tax Credit:
- The person who incurred the costs must be an “eligible person” within the meaning of M.G.L. c. 21E:
- The site must be within an Economically Distressed Area;
- Response costs must be incurred before January 1, 2029;
- Response actions must have been completed through a Permanent Solution Statement or Remedy Operation Status under the Massachusetts Contingency Plan;
- The Tax Credit is equal to 50% of Net Response and Removal Costs; if an Activity and Use Limitation is employed, the Tax Credit is reduced to 25% of such costs;
- The applicant must have commenced and diligently pursued the Response Action on or before August 5, 2028;
- The applicant may not be subject to any enforcement action under M.G.L. c. 21E and must own or lease the property for business purposes;
- The credit may be transferred but is not refundable;
- The applicant will not be entitled to any credit unless the Net Response and Removal Costs are equal to or greater than 15% of the Assessed Value of the property before remediation;
- In general, response costs that are not “necessary” to achieve a Permanent Solution or Remedy Operation Status are not eligible. The regulations contain a laundry list and examples of eligible and ineligible costs.
To maximize eligibility for the Tax Credit, we advise clients to review their site eligibility with their environmental consultants and contractors well in advance to structure and time the response actions and record keeping for eligibility. Applicants should carefully maintain records of response costs in order to support the detailed requirements of the Tax Credit application. The regulations require specific documentation of response costs that should be reviewed at the outset of any response action in order to maximize eligibility and recovery. Because the regulations require a Licensed Site Professional’s written description of the response action’s eligibility, it is imperative that applicants engage an LSP with Tax Credit experience to oversee the response actions and assist in preparing the application.
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