The Massachusetts Brownfields Tax Credit (BTC) is a tax credit that Massachusetts taxpayers can use to offset taxes owed to the Commonwealth on a dollar-for-dollar basis (for up to 50% of a taxpayer's annual tax obligation). Since its enactment in 1998, the BTC has provided financial support to owners of contaminated land across Massachusetts. The BTC program has helped stimulate the redevelopment of land that may have otherwise remained contaminated, undeveloped, and unused.
The BTC has a long history of supporting development and stimulating the economy in Massachusetts. This post is a review of the BTC history, an outline of the eligibility requirements, and an exploration of the future of the program (specifically how the BTC can be combined with Renewable Energy Tax Credits to turn Brownfields into Brightfields).
Brownfields Eligibility Requirements:
When discussing BTC’s it is necessary to understand what qualifies as an eligible Brownfields Tax Credit site in Massachusetts. The precursor to a BTC application is the remediation of an environmentally contaminated property as mandated by MGL Ch 21E that has followed the procedures of the Massachusetts Contingency Plan (MCP). In order to qualify for the Tax Credit, the taxpayer must "achieve" a permanent solution, defined as the filing of a Remediation Action Outcome (RAO) or Remedy Operation Status (ROS) with the MA Department of Environmental Protection (DEP). The contamination is generally subsurface soil and/or water contamination.
In addition to the MCP reporting requirements resulting in the designation of a Release Tracking Number (RTN) to the site and the filing of the RAO or ROS with DEP, the taxpayer filing for the BTC must meet the following criteria:
- The taxpayer cannot have caused the contamination;
- The taxpayer must be the owner or lessee of the contaminated site during the cleanup period;
- The taxpayer must incur remediation expenses of at least 15% of the assessed value of the property at the time of the initiation of the cleanup;
- The contaminated site must be used for business purposes;
- The contaminated site must be located in an economically distressed area (EDA);
- The taxpayer must be in good standing with DEP;
- The remediation expenses must have been incurred after August 5, 1998 and before December 31, 2013 (unless the statute is extended); and
- The RAO or ROS must be filed with DEP before August 5, 2013 (unless the statute is extended).
The Current Climate:
In the past, properties in Massachusetts that met all of the above requirements were considered valid applicants for the BTC. This is still true today however, it is important to note that without an extension, the Massachusetts BTC is set to expire on August 5th, 2013. What this would mean is that for sites that have not yet filed an RAO or ROS by August 5, 2013, there would no longer be a BTC available to them. However, there are two options before the legislature to extend the BTC: either for 2 years or 5 years.
Many industry professionals have come together to support the extension. As the BTC is widely supported by government, private developers/ owners, and environmentally conscious groups, we all expect that the BTC will be extended from its August 5th, sunset date for a 5 year period.
One particularly convincing argument for the extension is an economic analysis conducted by NAIOP which indicated that for each $1 of the BTC issued, the State is ultimately receiving back $7 in terms of direct economic investment in MA, evidenced by increased payroll, sales, and income taxes, as well as providing property tax revenue to the cities and towns, eliminating contaminated sites, and spurring economic development in the Commonwealth.
Although the future of the Brownfields program has yet to be determined, at a minimum the Department of Revenue will be accepting Brownfields applications up until August, 2013 with costs eligible through December 31, 2013.
Brightfields: Bridging Brownfields and Renewable Energy
Given the construction focus on green development, LEED certification, and renewable resources, there is now a more realistic possibility of adding renewable energy production, or energy efficient equipment to Brownfields developments. This renewable energy add-on is either in addition to the property’s primary use, or as the new commercial use itself.
Brownfields sites have become increasingly popular with developers who wish to create renewable energy sites (typically wind and solar). This is because the contaminated Brownfields sites are inexpensive to purchase, and may be eligible for multiple tax credits (both BTC’s and Renewable Energy Tax Credits). Sites where contaminated land is cleaned up and converted to Renewable Energy use are called Brightfields.
An example of a Brightfield project is in Brockton, MA where a foreign-based company built a solar array on a site formally used to produce methane-gas lamps. The site was remediated and the renewable energy equipment was installed, ultimately saving the company hundreds of thousands of dollars on their project.
From a tax credit standpoint, the transforming of BTC eligible sites to renewable energy sites is a significant opportunity. As discussed above, brownfields sites are generally much less expensive to purchase than clean sites, and are eligible for tax credits amounting to 50% of clean-up costs. When used in combination with the tax credits available for renewable energy production, the opportunity for savings and equity generation is considerable.
When discussing Renewable Energy Tax Credits (REC’s), it is important to note that there are 2 types of federal REC’s available. There is the tax credit for investment in renewable energy infrastructure and equipment, which amounts to 30% of the investment in renewable energy (ITC). There is also, the tax credit that is available for the production of renewable energy (PTC), which amounts to a subsidy for each kilowatt hour of renewable energy produced. On the federal side, you need to choose between the ITC or the PTC. However, there are also State PTC's available for renewable energy production, which has led project developers to usually choose a combination of the Federal ITC and a State PTC to finance the costs of building the project and producing the energy.
The future of Tax Credit programs in Massachusetts is bright. The BTC program is one of the most successful in the country, and has been used to help hundreds of tax payers receive funds, with the potential to now combine the benefits from this program with the benefits from state and federal renewable energy programs. These tax credit programs can and will pave the way for a cleaner, more ecologically and economically friendly state.