Governor Eliot Spitzer’s January 2008 budget bill proposes amendments to the Brownfield Cleanup Program Act (the “Act”) that attempt to limit the amount of tax credits available under the program. The budget bill proposes amendments to the Act in two stages. The interim amendments would become effective immediately and would expire upon enactment of permanent amendments.
The Act now includes a substantial tangible property tax credit for sites that have received a brownfield cleanup program certificate of completion of remediation (“COC”) from the New York State Department of Environmental Conservation (“DEC”). The tangible property tax credit is 12 percent (or 10 percent in the case of an individual taxpayer) of the taxpayer’s federal tax basis in qualified tangible property, which includes depreciable tangible personal property or real property, including buildings and structural components of buildings, that has a useful life of four or more years, was purchased by the taxpayer, is placed in service within three years of the issuance of the COC, and is principally used by the taxpayer for industrial or commercial (including the commercial development of residential housing) purposes. The tax credit may be increased two percentage points if the taxpayer remediates the site up to the DEC’s highest remediation standards, and may be increased by an additional eight points if at least 50 percent of the site is located in an area designated by New York State as an “Environmental Zone,” with high poverty and unemployment rates. This credit can be claimed for up to 10 taxable years after the date the COC is issued and may be claimed by a site lessee to which a COC has been transferred, as long as the lessee is not responsible for the contamination at the site.
A remediation tax credit is also available under the current Act. The remediation tax credit is 12 percent (or 10 percent in the case of an individual taxpayer) of the combined (soil and groundwater) remediation costs and, like the tangible property tax credit, can be increased up to an additional 10 percent depending on the level of cleanup and the location of the site.
Under the current Act, large tangible property tax credits have been awarded to developers that may have invested relatively little in the remediation of a site. In order to control costs associated with the tangible property tax credits, the interim and permanent amendments would cap the tangible property tax credit at ten million dollars and fifteen million dollars, respectively. In both cases, taxpayers accepted into the brownfield cleanup program on or after July 1, 2007 or who have a COC transferred to them on or after that date would be subject to the cap.
Both the proposed interim and permanent amendments would require applicants for entry into the brownfield cleanup program to identify any other sites that may be associated with a singular reuse or redevelopment project, so that the related sites are treated as one project for purposes of determining the amount of eligible tax credits. In addition, the amendments would limit the transfer of tangible property tax credits.
The proposed interim amendments would allow the DEC to prohibit sites from entry into the brownfield cleanup program if the DEC has determined that the reuse or redevelopment of the site would likely occur without tax credits, based on factors such as the extent, difficulty and cost of on-site remediation, the anticipated impact of remediation on the value of the property, and local economic circumstances.
The permanent amendments would separate eligibility for participation in the brownfield cleanup program from eligibility for tax credits. Persons not seeking tax credits would be able to participate in the program. Eligibility for tax credits would be premised upon the need for tax credits to promote reuse or redevelopment of the site.
Under the permanent amendments, subject to the fifteen million dollar cap, the tangible property tax credit would be 15 percent of the taxpayer’s federal tax basis in qualified tangible property, but could be increased up to 50 percent depending on various factors, including the location of the site in an Environment Zone (an additional 10 percent), conformance to a local waterfront revitalization plan (an additional 10 percent), and utilization of “smart growth” practices (up to an additional 10 percent) such as green building construction, use or generation of renewable energy sources, and proximity to public transit.
In an effort to encourage the best possible cleanup of a site, the permanent amendments would fix the amount of remediation tax credits available. A site preparation credit for 25 to 75 percent of site cleanup and preparation (soil, surface water or sediment cleanup) costs would be available depending on the extent of the cleanup. An on-site groundwater remediation credit of 50 to 75 percent of cleanup costs also would be available, and could be increased by 10 percent for a cleanup that achieves the best possible remediation for the site, or by 25 percent where groundwater is remediated to unrestricted use standards.