| Date: | 11/18/2013 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Tax Administration
Background: This Directive addresses recent questions concerning applications for the Brownfields Tax Credit (the “Credit”).
The Credit was enacted pursuant to chapter 206 of the Acts of 1998, which added G.L. c. 62, § 6(j) and G.L. c. 63, § 38Q to the Massachusetts General Laws. Pursuant to these statutory sections, individuals and business entities are allowed a credit against their Massachusetts personal income tax or corporate excise liability for a percentage of the costs incurred for an environmental response action that results in either a permanent solution or remedy operation status in compliance with G.L. c. 21E. These provisions specify that any unused portion of a Credit, as reduced from year to year, can be carried over and applied to a tax liability for any subsequent year, not to exceed five years.
The Credit provisions were amended by chapter 123 of the Acts of 2006. The amendments extended the availability of the Credit to nonprofit organizations. In addition, the amendments authorized the transfer, sale or assignment of a Credit to another taxpayer with a liability under c. 62 or c. 63 or to a nonprofit organization. (Credit transfers had not previously been authorized.) The effective date of these amendments was June 24, 2006. Pursuant to this legislation, an individual or entity (a “person”) that generates a Credit in taxable years beginning on or after June 24, 2006 may transfer any unused portion of the Credit, in whole or in part. See TIR 06-16.
The Credit is allowed “at the time the permanent solution or remedy operation status is achieved.” G.L. c. 62, § 6(j)(1); G.L. c. 63, § 38Q(a). Before a person applies for the Credit with the Department of Revenue (“DOR”), such person must file documentation of a permanent solution or a remedy operation status submittal with the Department of Environmental Protection (“DEP”). After making the appropriate submission to DEP, a person may claim its Credit from DOR by submitting a Brownfields Credit Application (“Form BCA” or “application”). If its Form BCA is approved, the person may file an income or corporate excise return using the Credit to offset its tax liability or apply to DOR for authorization to transfer the Credit by filing a Brownfields Credit Transfer Application (“Form BCTA”). In the case of an authorized transfer, the transferee may use the Credit to offset the transferee’s Massachusetts personal income tax or corporate excise liability.
For purposes of this Directive, a person (1) “generates” the Credit when it files documentation of a permanent solution or remedy operation status with DEP; (2) “claims” or seeks to claim the Credit when it files Form BCA with DOR; (3) “uses” or “utilizes” the Credit when it files a Massachusetts tax return and appropriately offsets a portion of its tax liability with Credit amounts; and (4) “transfers” the Credit (including through a sale or assignment of the Credit) when it files a properly completed Form BCTA. A person that seeks to use or transfer the Credit must first generate and then properly claim the Credit.
The rules set forth in Directive 1 shall apply prospectively to all applications for the Credit submitted on or after April 5, 2013. The rules set forth in Directives 2-4 shall apply to all pending and future applications.
Issue 1: When may a person properly claim the Credit where the person is (a) subject to Massachusetts personal income tax or corporate excise liability (a “Taxpayer Claimant”) or (b) a nonprofit organization that does not file a personal income tax or corporate excise return (a “Nonprofit Claimant”)?
Directive 1(a): Taxpayer Claimant. A Taxpayer Claimant may claim the Credit for the tax year in which the Credit is generated, i.e., the tax year in which the documentation of a permanent solution or remedy operation status is filed with DEP (the “Claim Year”). A Taxpayer Claimant may use the Credit to offset its tax liability, or may transfer the Credit, so long as such use or transfer is consistent with the rules set forth in this Directive and the otherwise applicable rules.[1]
(i) Use of Credit by Taxpayer Claimant
The Credit is properly utilized on a tax return filed for the Claim Year. If a Taxpayer Claimant does not use the Credit on its return for the Claim Year, such person may later utilize the Credit by filing an amended return for the Claim Year at any point within the statute of limitations for that tax year (the “Claim Year Statutory Period”). The period of time for filing an amended tax return is set forth in G.L. c. 62C, § 37, and is generally three years from the due date of the original tax filing, including any permitted extensions.
Where a Taxpayer Claimant fails to utilize the Credit on its return for the Claim Year and also fails to utilize the Credit through an amended return filed during the Claim Year Statutory Period, such person is precluded from utilizing any amount of Credit to offset its Massachusetts tax liability in the Claim Year. However, in such cases, when the Taxpayer Claimant had insufficient liability in the Claim Year to have exhausted the full amount of the Credit, the amounts of the Credit that could not have been used in the Claim Year may be carried forward, as reduced from year to year,[2] for up to five tax years after the Claim Year. Thus, the Taxpayer may use the carry forward Credit amount on returns for later tax years within five tax years of the Claim Year, to the extent that (1) such later tax years remain open and (2) the Taxpayer Claimant would have had such carry forward Credit if it had timely used the Credit in the Claim Year and any available Credit carry forward in subsequent tax years. [3]
(ii) Transfer of Credit by Taxpayer Claimant
In the case of a Credit attributable to a Claim Year that commences on or after June 24, 2006, a Taxpayer Claimant may apply to DOR to authorize the transfer of the Credit (instead of using the Credit to offset its own tax liabilities as described above). In general, DOR will authorize the transfer of such Credit amount as the Taxpayer Claimant could itself have utilized on a timely filed return (or timely filed amended return) filed on the same day as the transfer application. In the case of a transfer application filed after the Claim Year Statutory Period, the transfer shall be approved only to the extent of any carry forward to which the transferor would have been entitled if it had timely filed an amended return for such carry forward tax year on the date of the transfer application. In any event, however, DOR will not authorize transfer of a Credit after the five year carry forward period with respect to a Claim Year has expired.[4]
Directive 1(b): Nonprofit Claimant. A Nonprofit Claimant is entitled to claim a Credit and transfer the Credit generated in a taxable year beginning on or after June 24, 2006. The rules for Nonprofit Claimants to generate, claim, use and transfer a Credit otherwise generally mirror those set forth in Directive 1(a) applicable to Taxpayer Claimants. However, a Nonprofit Claimant’s tax year will be treated as being the calendar year in which it submits the required documentation with DEP. Therefore, a Nonprofit Claimant’s Claim Year will be deemed to be the calendar year in which it files this documentation with DEP, and such Claimant will be entitled to claim and transfer the Credit consistent with the filing rules applicable to a calendar year tax filer. However, since a Nonprofit Claimant will generally not have personal income tax or corporate excise liability, such Claimant will generally be able to claim the full amount of a Credit or seek transfer of the full amount of such Credit at any point within the initial Claim Year or subsequent carry forward period (except in cases where the Nonprofit Claimant has unrelated business income tax liability).[5]
Discussion: The applicable statutes provide that an otherwise eligible person shall be allowed a Credit “at the time the permanent solution or remedy operation status is achieved.” G.L. c. 62, § 6(j)(1); G.L. c. 63, § 38Q(a). Thus, the events that confer the eligibility for and that “generate” the Credit are the achievement of a permanent solution or remedy operation status and documentation of a permanent solution or remedy operation status submittal with DEP. Further, the Credit carry forward provisions allow any person that “is entitled to a credit to carry over and apply to its tax liability for any subsequent taxable year, not to exceed 5 taxable years, the portion of those credits, as reduced from year to year” that it was unable to utilize based upon the restrictions set out in G.L. c. 63, § 32C and G.L. c. 62, § 6(j)(3). Given these rules, where a person claims the Credit outside the Claim Year Statutory Period, but within the carry forward period, the Credit applied for, if otherwise substantiated, will be allowed subject to reduction in amount to the extent that the person could have utilized the Credit to reduce its Massachusetts tax liability during a closed tax year irrespective as to whether the person has unpaid tax liability for such year.
The following examples illustrate Directives 1(a) and 1(b):
Example 1: A Taxpayer Claimant that is an individual calendar year tax filer submits documentation of a permanent solution with DEP in 2008. The documentation lists $120,000 in eligible costs (net response and removal costs). Assuming there is no activity and use limitation (AUL) associated with cleanup of the site and all other qualifying criteria have been met, the Taxpayer Claimant is entitled to a 50% Credit, or $60,000, which may be used to offset her personal income tax liability or transferred. Assuming that the Taxpayer Claimant has an April 15 filing date for purposes of filing her tax return and files a valid request for extension, the Taxpayer Claimant may use the Credit to the full extent permitted by the statute either on her original 2008 tax return or by applying for transfer of the Credit at any time up to and including October 15, 2012 (i.e., the last date, including the permitted extension period, for filing an amended return for her 2008 tax year).
Assuming the above facts, if the Taxpayer Claimant files an application for the Credit with DOR on June 1, 2012, she is entitled to apply the Credit to her own taxes on her personal income tax returns for her 2008-2013 tax years. Alternatively, the Taxpayer Claimant can transfer the Credit to a transferee that can use the Credit to offset its personal income tax or corporate excise liability for the year in which the transfer occurs or through its 2013 tax year (corresponding to the end of the Taxpayer Claimant's carry forward period).
If the Taxpayer Claimant does not file an application for the Credit with DOR until June 1, 2013, the Credit shall be reduced to the extent that the Taxpayer Claimant could have utilized the Credit to reduce her Massachusetts tax liability for the 2008 tax year. Assuming this reduces the Credit to $50,000, the Taxpayer Claimant is entitled to apply that amount against the tax on her returns filed for tax years 2009-2013 as reduced from year to year.[6] Alternatively, the Taxpayer Claimant may transfer the reduced Credit to a transferee that can use the Credit to offset its personal income tax or corporate excise liability for the tax year in which the transfer occurs.
Example 2: Assume the same facts as in Example 1, except that the person that submits the documentation of a permanent solution with DEP in 2008 is a Nonprofit Claimant. Also, assume that this Nonprofit Claimant does not file Form BCA with DOR until June 1, 2013. The Nonprofit Claimant is deemed to be a calendar year tax filer and its ability to claim the Credit from DOR and subsequently transfer the Credit is subject to the same timing rules for purposes of claiming and transferring a Credit that apply to Taxpayer Claimants, as illustrated in Example 1. Therefore, the Nonprofit Claimant is eligible to transfer the Credit to a transferee that can apply the Credit for its 2013 tax year. However, because the Nonprofit Claimant did not have tax liabilities during the Claim Year Statutory Period (and in fact was not required to file returns during such prior period), the amount of the Credit that the Nonprofit Claimant may transfer is not reduced from the $60,000 for which it was originally eligible.
Issue 2: Are costs incurred subsequent to a remedy operation status submittal with DEP potentially eligible for the Credit?
Directive 2: Yes. Where a person has previously achieved remedy operation status, additional costs necessary to attain a permanent solution or incurred to remove an AUL may be included in such person’s Credit application.
Discussion: The applicable statutes define “net response and removal costs” eligible for the Credit as “expenses paid by the taxpayer for the purposes of achieving a permanent solution or remedy operation status in compliance with chapter 21E.” G.L. c. 62, § 6(j)(4); G.L. c. 63, § 38Q(d). Where a person has previously achieved remedy operation status, additional costs necessary to attain a permanent solution or to remove a previously imposed AUL may be included in the application. However, additional costs incurred solely to maintain remedy operation status are not “eligible costs.” Additional costs incurred to remove an AUL are also includable in an application for the Credit. Any additional costs that are not geared toward attaining a permanent solution or removal of an AUL are not “eligible costs” and will be backed out in determining eligibility for the Credit and calculating the amount of any Credit to be awarded.
Issue 3: May a nonprofit organization receive a Credit based upon documentation of a permanent solution or a remedy operation status submittal to DEP before June 24, 2006?
Directive 3: No. A nonprofit organization may only receive a Credit based upon documentation of a permanent solution or a remedy operation status submittal to DEP in a taxable year of the nonprofit organization that commenced on or after June 24, 2006.
Discussion: Nonprofit organizations were not entitled to receive the Credit with respect to a taxable year that commenced prior to the June 24, 2006 amendments to the relevant statutes. Therefore, such organizations are not entitled to receive a Credit premised uponsubmittal of documentation of a permanent solution or remedy operation status to DEP that occurred prior to that date. However, in the case of a submittal to DEP for a taxable year of the nonprofit organization that commenced on or after June 24, 2006, the Credit will be calculated by taking into account all net response and removal costs, including those incurred between August 1, 1998 and June 24, 2006.
Issue 4: May a person transfer, sell or assign a Credit that was based upon documentation of a permanent solution or a remedy operation status submittal to DEP in a taxable year of the person that commenced prior to June 24, 2006?
Directive 4: No. A person may only transfer, sell or assign a Credit based upon documentation of a permanent solution or a remedy operation status submittal to DEP for a taxable year of the person that commenced on or after June 24, 2006.[7]
Discussion: Persons were not entitled to transfer, sell or assign a Credit prior to June 24, 2006. Therefore, persons are not entitled to transfer, sell or assign a Credit (including a portion of such Credit) that was premised upon documentation of a permanent solution or a remedy operation status submittal with DEP in a taxable year of the person that commenced prior to June 24, 2006. However, in the case of a submittal to DEP on or after June 24, 2006, the Credit generated is calculated by taking into account all net response and removal costs, including net response and removal costs incurred between August 1, 1998 and June 24, 2006.
/s/Amy Pitter
Amy Pitter
Commissioner of Revenue
November 18, 2013
DD 13-4