Under the Brownfields Act, certain taxpayers are allowed a credit against their personal income tax or corporate excise liability for the costs incurred for an environmental response action (1) which results in either a permanent solution or remedy operation status in compliance with G.L. c. 21E.
Amount of the Credit
The amount of the credit varies according to the extent of the environmental remedy. If the taxpayer's permanent solution or remedy operation status includes an activity and use limitation, then the amount of the credit is 25% of the net response and removal costs incurred by the taxpayer. However, if there is no activity and use limitation, then the amount of the credit is 50% of the net response and removal costs.
Taxpayers Who May Claim the Credit
The credit is available to either a chapter 62 taxpayer or a domestic or foreign corporation taxable under chapter 63. As announced in TIR 97-8, the Massachusetts tax treatment of Limited Liability Companies (LLCs) (2) will be determined by adopting the entity's federal income tax classification. These taxpayers must be eligible persons. In addition, a taxpayer subject to any outstanding or unresolved enforcement action under G.L. c. 21E cannot claim the credit.
Property is eligible for the credit if it meets the following criteria: 1) The property is owned or leased by the taxpayer for business purposes. 2) The property has been reported to the Department of Environmental Protection (DEP) pursuant to G.L. c. 21E, § 2. 3) The property is located in an economically distressed area. A list of economically distressed areas can be obtained from the Governor's Office of Brownfields Revitalization, 10 Park Plaza, Boston, MA 02116.
Net response and removal costs that the taxpayer incurs between August 1, 1998 and January 1, 2005 are eligible for the credit provided that the taxpayer commences and diligently pursues an environmental response action before August 5, 2001. However, unless the net response and removal costs are equal to or greater than 15% of the assessed value of the property prior to remediation, the costs will not be considered as eligible costs.
Time for Claiming the Credit
The credit can only be claimed after a taxpayer achieves and maintains a permanent solution or remedy operation status. The credit is available for tax years commencing on or after January 1, 1999.
Prior to claiming the credit the taxpayer must file a response action outcome statement or remedy operation status submittal with DEP. At the time the taxpayer claims the credit, the taxpayer must attach to the tax return a copy of the response action outcome statement or remedy operation status submittal cover sheet.
Limitations on the Credit
There are two types of limitations on the credit: the fifty-percent limitation and the minimum excise limitation.
Fifty-percent limitation: For a chapter 62 taxpayer, the maximum amount of credit used for the taxable year may not exceed fifty percent of the taxpayer's personal income tax liability for the taxable year. G.L. c. 62, § 6(j)(3). For domestic and foreign corporations, the credit is subject to the fifty- percent limitation contained in G.L. c. 63, § 32C.
Minimum excise limitation: Domestic and foreign corporations may not use the credit to reduce the tax liability below the minimum excise imposed under G.L. c. 63.
Interaction with Brownfields Programs
The credit is not allowed to taxpayers who have received financial assistance from the Brownfields Redevelopment Fund established pursuant to St. 1975, c. 212, § 8G or from the Redevelopment Access to Capital (RAC) Program established pursuant to G.L. c. 23A, § 60. Financial assistance includes, but is not limited to, any loans, grants or subsidies made under the Brownfields Redevelopment Fund and/or any environmental insurance premium subsidies and any guarantees of retentions from the Redevelopment Access to Capital (RAC) program. A taxpayer participating in the RAC program who does not receive a premium subsidy or whose retention is not guaranteed under the program may claim the credit, provided the taxpayer is otherwise eligible for the credit.
The credit can be carried over for five years. There is no unlimited carry over for the credit, not withstanding the provisions of G.L. c. 63, § 32C. Moreover, no credit can be carried over to a year when the taxpayer has ceased to maintain the remedy operation status or permanent solution for which the credit was granted.
If the taxpayer ceases to maintain the remedy operation status or permanent solution in violation of the Massachusetts Contingency Plan (MCP) prior to the sale of the property or the termination of the lease, the difference between the credit taken and the credit allowed for maintaining the remedy shall be added back as additional taxes due in the year the taxpayer fails to maintain the remedy operation status or permanent solution. The amount of the credit allowed for maintaining the remedy shall be equal to the original credit multiplied by a ratio of the number of months the remedy was maintained over the number of months of useful life of the property. The useful life of the property shall be the same period as that used by the taxpayer in determining depreciation deductions for federal income tax liability. The useful life for real property that is not depreciable, e.g. land, is deemed to be twelve months. The sale of the property or the termination of the lease will not require any portion of the credit to be recaptured.
Glossary of Terms
For purposes of this TIR, the following terms shall have the following meanings:
Activity and use limitation, a restriction, covenant or notice concerning the use of real property which is imposed upon real property by a property owner or the Department of Environmental Protection pursuant to and in accordance with G.L. c. 21E and regulations promulgated thereunder.
Economically distressed area, an area or municipality that has been designated as an economic target area, or that would otherwise meet the criteria for such designation pursuant to G.L. c. 23A, § 3D, or the site of a former manufactured gas plant.
Eligible person, generally, an owner or operator of a site who did not cause or contribute to the release of oil or hazardous material from or at the site and did not own or operate the site at the time of the release, further defined in G.L. c. 21E, § 2.
Enforcement action, any criminal, civil or administrative action taken by or on behalf of the Commonwealth of Massachusetts, the Department of Environmental Protection (DEP) or the Attorney General for the Commonwealth to enforce or otherwise effectuate G.L. c. 21E and the Massachusetts Contingency Plan (MCP), as amended. The term "enforcement action" includes, but is not limited to, the issuance or filing of: any indictment or information, any criminal or civil complaints, notices of non-compliance, penalty assessment notices, notices of enforcement conference, unilateral or consent orders, demands for payment of past response action costs incurred by DEP, notices of intent to assess an administrative penalty, any administrative or adjudicatory proceeding to secure compliance with G.L. c. 21E, the MCP or any order or consent order pursuant thereto, notices of intent to perfect a Chapter 21E lien or the existence of a Chapter 21E lien, which lien has not been discharged.
Environmental response action, an action to assess, contain, or remove, as those terms are defined in G.L. c. 21E, § 2, oil or hazardous material, in compliance with the requirements of G.L. c. 21E and the regulations promulgated pursuant thereto.
Massachusetts Contingency Plan (MCP), Regulation 310 CMR 40.0000 et. seq. promulgated by the Commissioner of the Massachusetts Department of Environmental Protection pursuant to G.L. c. 21E for the implementation administration and enforcement of that chapter and other applicable provisions.
Net response and removal costs, expenses paid by the taxpayer for purposes of achieving a permanent solution or remedy operation status in compliance with G.L. c. 21E and the regulations promulgated pursuant thereto.
Permanent solution, a measure or combination of measures that, at a minimum, shall ensure the attainment of a level of control of each identified substance of concern at a site or in the surrounding environment such that no such substance of concern shall present a significant risk of damage to health, safety, public welfare or the environment during any foreseeable period of time.
Remedy operation status, a response action that has eliminated a condition of any substantial hazard to public health, safety or welfare or the environment and relies upon active operation and maintenance for the purpose of achieving a permanent solution.
Remedy operation status submittal, documentation, as described in 310 CMR 40.0893, required to effect remedy operation status.
Response action outcome statement, documentation, as described in 310 CMR 40.1056, required to be submitted to DEP at the conclusion of response action.
Bernard F. Crowley, Jr.
Acting Commissioner of Revenue
August 16, 1999
1. Italicized terms are defined in a glossary at the end of this Technical Information Release.
2. The Department interprets the term "limited liability corporation used in G.L. 63, § 38Q(a) to refer to limited liability companies (LLCs).