BU, Northeastern, and Wellesley Await Final Decision

A high profile Massachusetts lawsuit regarding the denial of Brownfields Tax Credits has been wending its way through the legal system over the past year and now sits in the lap of an Appeals Court judge. Recent filings by the defendant Massachusetts Department of Revenue (DOR) and the plaintiffs – three Boston-area colleges – set the stage for a dramatic verdict that is expected in the coming months.

In 2012, Northeastern University, Boston University, and Wellesley College separately submitted applications to DOR seeking tax credits related to environmental cleanups completed at the respective schools. The Massachusetts Brownfields Tax Credit program, originally passed in 1998, allows a credit against income that serves as a partial reimbursement of cleanup costs for certain projects. In 2006, the state amended the program to expand eligibility to non-profits and allowing the credits to be transferred or sold. After that change, many non-profits participated and garnered millions of dollars in credits in the ensuing years.

In April 2013, however, DOR announced changes in its long-standing procedures in a Draft Directive. DOR then used these changes (finalized in November 2013) as a basis for denying credits to BU, Northeastern, and Wellesley on their applications, which had been submitted prior to the Directive. Purportedly, the changes were “clarifications” to address questions about the program; however, DOR has since admitted in its case filings that the changes were implemented due to the increased cost of the program to the state.

The colleges sued in 2014 and in October 2015, Suffolk Superior Court Judge Dennis J. Curran found for the colleges, stating in part:

“Directive 13-4 is unreasonable and DOR’s denial of the applications based on that directive was unlawful. It appears to be nothing more than a naked, confiscatory attempt by a state administrative agency to appropriate private property to fill government coffers.”

Additional details regarding the case, including background information , a summary of each side’s arguments, and a press release on the decision, have been published by Cooperstown Environmental LLC, a leading authority on Massachusetts Brownfields Tax Credits.

The DOR appealed the Superior Court decision in December 2015. DOR filed a Motion for Clarification in February 2016, which was denied by the judge, and later filed a brief in support of its argument on June 28, 2016. The plaintiff’s lawyer, Daryl Lapp of Locke Lord in Boston, responded with his own filing on August 22, 2016.

The crux of the disagreement and arguably the key issue in the case is the legislative intent behind the 2006 amendments. DOR has taken the position that the clear intent of the program is to incentivize future cleanups; therefore, non-profits can only receive credits for cleanups completed in the year after the amendments became effective (i.e., 2007). The appeals brief essentially repeats the argument the state made in the Superior Court case but asserts multiple times that the original judge was mistaken in his decision. Therefore, it is asking the Appeals Court to overturn the original outcome. The inconvenient fact that DOR had been approving similar applications for years before suddenly changing direction was blamed on the Department’s own tax examiners, whose conduct was said to have “violated” and “is contrary to” their own written policy.

The colleges, by contrast, argued that the intent of the 2006 amendments was simply to afford non-profits and taxpayers equal standing under the tax credit program. They argue that treating taxpayers and non-profits differently is not supported by legislative intent, by the actual language of the statutes, or indeed, even by DOR’s own conduct in the years prior to the Directive in 2013. They argue that DOR is not allowed to simply rewrite the law or change its long-standing practices and interpretations unilaterally absent any direction to do so from the Legislature. Lapp argues that the Superior Court decision should be upheld, that the Directive should be terminated, and that the colleges’ applications should be approved as submitted.

And now, as they say, it is up to a judge to decide.

Disclosure: Cooperstown Environmental LLC represented one of the plaintiffs in the case and has an interest in the outcome of the case.