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Are You Getting All of Your Brownfields Tax Credits?

By Ned Abelson
August 2010
Practice: Environmental
People: Jonathan Z. Pearlson, William M. Seuch

Massachusetts first created a Brownfields tax credit in 1998 to encourage the redevelopment of Brownfields sites. This credit is available to certain taxpayers who cleanup qualifying sites in Massachusetts. The tax credit can be up to 50% of the net cost of the work.

Based on the most recent statutory amendments, which were enacted earlier this month, the work must be started on or before August 5, 2013.  These recent statutory amendments also extended by two years until January 1, 2014 the date by when the relevant costs must be incurred.

This Advisory provides a brief summary of the Massachusetts Brownfields tax credit, as well as several of the requirements to obtain it. Based on our experience and recent communications we have had with public officials, we believe many real estate developers are not taking full advantage of the available opportunities.

The Massachusetts Brownfields Tax Credits

The 1998 Massachusetts Brownfields bill provided certain taxpayers with the ability to obtain tax credits against their Massachusetts income tax liability as an incentive to cleanup Massachusetts Brownfields sites. In 2000, 2003, 2006 and again in 2010, the statute concerning these tax credits was amended. In addition, the Massachusetts Department of Revenue (the “DOR”) has issued certain Technical Information Releases concerning the statute and its amendments. Based on these materials, described below are several factors to consider in evaluating whether the Massachusetts tax credits are available for a particular project.

Some of the terms that are used below have the meaning given to them in the Massachusetts Contingency Plan (the “MCP”), which is the Massachusetts regulatory program concerning the cleanup of contaminated sites.

  • The Brownfields Tax Credit is now transferable.  The 2006 amendments revised the statutory language so that all or any portion of the Massachusetts tax credits may be “transferred, sold or assigned….” This change has been very helpful in increasing the usefulness of these tax credits, particularly for non-profit organizations.  In addition, a number of taxpayers who were not able to use all of the credits they generated have now transferred and sold their unused credits, for which there has been a strong market. 
  • The taxpayer must “commence and diligently pursue” the relevant environmental response action(s) on or before August 5, 2013.  This language is fairly self-explanatory, particularly in comparison to much of the techno-speak often encountered in environmental and tax regulations.

In light of the complicated ownership structures associated with some real estate projects, however, it is also important to be sure that the party performing the relevant response actions (i.e., the party entitled to the credits) will also be the party with (or a tax flow through, whose owners have) income tax liability against which the credits may be offset.

  • A Permanent Solution or Remedy Operation Status for the site must be achieved and maintained in compliance with the MCP.  What this means in English is that the cleanup must for the most part be completed before the tax credits are available. Under the MCP, a Permanent Solution means that the active cleanup of the site is done. Remedy Operation Status applies to sites where a remedial system that relies on active operation and maintenance (the definition for which is broader than you might expect) is being implemented for the purpose of achieving site closure.

Unaddressed and Open Issues

Neither the Brownfields bill as amended (the “Statute”) nor the guidance issued by the DOR directly address the possibility that more than one MCP site may be present at a particular property. Thus, neither the Statute nor the DOR’s written guidance specifically say whether the credits may be claimed for individual MCP sites at a particular property for which MCP closure has been achieved, even though MCP closure may not have been achieved for (a) the property as a whole or (b) all of the MCP sites at that property.

Conversely, because neither the Statute nor the DOR written guidance address the possibility of more than one MCP site at a particular property, those materials do not provide specific guidance regarding whether costs associated with more than one MCP site can be added together or “stacked,” so that the cumulative total of those costs can be taken into account when calculating the amount of the tax credit for a particular property.

  • If an Activity and Use Limitation is used to close out a site under the MCP, then a credit of 25% of the net response and removal costs is permitted.  If no Activity and Use Limitation is used, then the credit increases to 50% of the net response and removal costs.

An Activity and Use Limitation (an “AUL”) is a title document created by the MCP, which allows a land owner to voluntarily restrict the future use of the subject property as part of achieving site closure. Using an AUL may result in cost savings in achieving MCP site closure.

One interesting question is what happens if an AUL is used for only part of the relevant property. The Statute and the associated DOR guidance materials do not seem to anticipate this possibility.

  • The net response and removal costs must be incurred between August 1, 1998 and January 1, 2014. These dates are clear, but in some cases the question of what are “net response and removal costs” that have been “incurred” can be challenging.
  • 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.”  The term “economically distressed area” is defined in the Statute. A list of these areas is available at http://www.mass.gov/dep/cleanup/eda.htm.
  • 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.”  This one sounds easy, but often is not. First, be sure to know the assessed value of the property prior to response action/remediation, and be sure to know when the response action/remediation began. A second critical factor is what does the term “property” mean.  Often, the relevant tax parcel (i.e., the property for which an assessed valuation is known) is not the same as the relevant MCP site (i.e., the property in connection with which the relevant “net response and removal costs” have been incurred). As a result, interesting valuation and allocation questions can and do arise.
  • The taxpayer must be an Eligible Person, as defined by Chapter 21E.  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. In other words, only innocent owners or tenants of the site can qualify for the Brownfields tax credit, and those parties must not have owned or operated the site at the time the relevant contamination was released.

This approach is consistent with two of the original goals of the Statute, namely that new parties be encouraged by the tax credits to take on Brownfields sites, and parties who initially caused the contamination not be allowed the benefit of these credits.

  • The maximum amount of the credit allowed in any taxable year cannot exceed 50% of the tax owed by the taxpayer.
  • A taxpayer may carryover any unused portion of the credits from one tax year for up to five taxable years. At times, unused tax credits may be carried forward for use in any subsequent taxable year. However, the Statute specifically limits the carry-forward period for the Brownfields tax credits to five years.
  • The amount of any state funds received from the Massachusetts Redevelopment Access to Capital Program and/or the Massachusetts Brownfields Redevelopment Fund is deducted from the expense base for which the credit is available.  This is so even Eligible Persons do not get a double benefit in connection with cleaning up a particular site.

There are additional requirements in the Statute concerning what happens if the taxpayer is subject to enforcement action under the MCP, and if MCP closure is no longer maintained at the relevant site. There are also a number of other details in the Statute that need to be considered when evaluating whether the Massachusetts Brownfields tax credits are available for a particular site.


Although the requirements to qualify for the Massachusetts Brownfields tax credit are many in number and sometimes complicated, if you have spent the money and you qualify, then you should make sure to get the credits you deserve.

If you have questions about whether you are entitled to the Massachusetts Brownfields tax credit, please contact your usual Goulston & Storrs attorney or:

Ned Abelson
(617) 574-4082

Jonathan Z. Pearlson
(617) 574-3556

William M. Seuch
(617) 574-4041

Ned Abelson, Jonathan Pearlson and William Seuch are Directors in the Environmental Law Group at Goulston & Storrs in Boston.

Pursuant to IRS Circular 230, please be advised that, to the extent this communication contains any federal tax advice, it is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

This G&S advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

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