Three Boston-area colleges sued the Massachusetts Department of Revenue (DOR) in August claiming that “clarifying” changes made to the Massachusetts Brownfields Tax Credit program retroactively changed the program and resulted in the denial of reportedly more than $17 million in such credits sought by the colleges.
The Brownfields Tax Credit program was established in 1998 to provide economic incentives for the redevelopment of contaminated properties. The program did not initially impact non-profits such as institutions of higher education because they lack the income tax liability against which to use the tax credits. However, in 2006, the tax credits became transferable and hence valuable to non-profits that could sell the credits to others. In a series of later amendments, the underlying statute was changed to expand the period by which eligible costs needed to be incurred to include costs from August 1, 1998 through January 1, 2019.
In 2012, the DOR received applications from Northeastern University, Wellesley College, and Boston University claiming tens of millions of dollars in tax credits associated with environmental remediation that they performed on properties that they owned or leased.
In 2013, the DOR issued a Directive 13-4 providing additional guidance on various aspects of the Tax Credit program, which the colleges allege retroactively changed the rules by which the program has previously been administered. Most consequential for the colleges, the Directive provides that a “nonprofit organization may only receive a Credit based upon documentation of a permanent solution or a remedy operation status submittal to the Department of Environmental protection in a taxable year of the nonprofit that commenced on or after June 24, 2006.” In addition, the changes effectively imposed a five-year deadline to apply for the credits. Critically, this interpretation was applied to all applications pending at the time of the issuance of the Directive, including the three college applications.
The pending applications from the three colleges were denied after issuance of the Directive, despite their allegations that tax credits for at least eight other nonprofits were approved prior to the Directive for remediation costs that were incurred prior to the June 24, 2006 deadline.
In their complaint, the colleges allege that the Directive “is not a ‘clarification’ but a complete departure” from long-standing policies and interpretations of the Tax Credit program and seek to have the Directive overturned as contrary to the underlying statutes and as a retroactive change to DOR policy.