In a bid to rehabilitate the Brownfields Tax Credit ("BTC") application and approval process, the Massachusetts Department of Revenue ("DOR") has issued final regulations (830 CMR 63.38Q.1) and new administrative procedures (AP 636) governing credit applications received on or after July 9, 2021. These are expected to be promulgated and become official on July 23, 2021. They bring to a close a lengthy review process that began with a working draft in Spring 2020, followed by proposed regulations in January 2021.
The Massachusetts BTC is a non-refundable tax credit allowed to “Eligible Persons,” as defined under the Massachusetts Oil and Hazardous Material Release Prevention and Response Act (Mass. Gen. Laws Ch. 21E), for a percentage of costs incurred in achieving a permanent solution (or remedy operation status) in remediating contaminated property that is owned or leased for business purposes and also is located in an economically distressed area. A credit is available for 25% of costs for sites cleaned up with an activity and use limitation (AUL) and 50% for sites without an AUL. To be eligible for the credit, the costs (less any reimbursements received) must total at least 15 percent of the assessed value of the property before remediation.
The regulations go to great length to distinguish costs that are incurred to achieve a permanent solution (and thus are BTC eligible) from those related to other activities, such as building construction, that may occur in connection with an environmental remediation and which DOR considers ineligible. DOR’s characterization of costs has previously led to disputes over availability of the credit and assertions that it is second guessing the environmental experts. The final regulations continue the draft regulations’ robust description of eligible and non-eligible costs, along with examples. While DOR retains discretion to make determinations that vary from the examples, the regulations provide needed clarity as to what costs are eligible for the BTC.
Additionally, the final regulations and procedures contain several significant changes from the January 2021 proposed regulations. For example:
- Application Timelines. The finalized procedures provide timelines governing the BTC application and approval process, including 60-day status updates on a BTC application from DOR.
- Asbestos Removal. A BTC is now allowed for costs incurred for the removal and disposal of asbestos from a building that is being demolished to remove contaminated soil underneath the building, provided the BTC applicant knew of the soil contamination prior to demolition.
- Historic Fill. The final regulations indicate that DOR will not consider as eligible those costs incurred for excavation and off-site disposal of historic fill consistent with anthropogenic background where a permanent solution can be achieved without removal of the fill.
- Costs for Multiple Releases. For purposes of meeting the 15% assessed value threshold requirement, the final regulations and procedures allow aggregation of costs associated with permanent solutions relating to multiple releases on a property, provided the permanent solutions were achieved within a three-year period. The draft regulations had limited the period to one year.
- Appeal Process. There are notable changes to the appeal process, including a requirement that DOR provide an applicant with an explanation as to why an application was denied in whole or in part. Moreover, during an appeal, DOR is limited to reviewing only the amounts of the credit that were denied. Thus, by appealing a partial denial, an applicant will not risk opening up the entire application (including parts already approved) for further review.
Although disagreement may remain over where DOR has drawn the line between eligible and ineligible costs, the final regulations and procedures promise to standardize and speed up the BTC process.