Two reasons: because jobs and housing are created when property is restored to productive use, and our citizens’ health is protected when contaminated sites are cleaned up.

The primary intent of the Brownfields Tax Credit is to incentivize real estate development of contaminated properties by offsetting costs, and “tip the scales” to make otherwise marginal projects go forward. The Massachusetts Brownfields Act was passed in 1998 to encourage and provide an incentive for the cleanup of contaminated sites, sometimes known as Brownfield sites. (EPA defines Brownfields as property where expansion, redevelopment, or reuse is complicated by real or perceived environmental contamination.) The programs put in place by the Brownfields Act offer both economic incentives and liability protections to restore properties to productive use, which results in both economic development and a cleaner environment for our citizens.

In Massachusetts, the hazardous waste law generically known as “Chapter 21E” makes the owner of a contaminated property strictly liable, meaning it applies even to an “innocent” owner who purchases a property that has already been contaminated. In this way, the 21E law is a disincentive to purchase such a property, because the new owner has a potentially unlimited financial liability.

 This explains why many such properties (“Brownfields”) are underutilized and tough to sell – because of the cost, liability, and stigma. The 1998 Brownfields Act contains both liability protections and financial incentives. The Brownfields Tax Credit program has proven to be remarkably successful at meeting these objectives and rescuing many of these problem sites. Because of this program, many hundreds of properties have been cleaned up and put back into productive use. 

The credit is available only to “Eligible Persons”– essentially, innocent parties who did not cause the contamination or even own the land when the contamination occurred. Real estate developers are primary targets for the Brownfield credit, but many others qualify as well depending on the facts and circumstances – not-for-profits, businesses, colleges and universities, individual property owners and more. 

Eligibility for the Massachusetts Brownfields Tax Credit program requires that an applicant meet the following eligibility criteria:

• The site property must be used for commercial purposes (owner-occupied residential property is not eligible but multi-family housing counts).
• The property must be located in a Census Tract, city, or town designated as an Economically Distressed Area (EDA) or be a former MGP site.
• The applicant must be the owner, operator (tenant) of the property or was so at the time of the spending.
• The project was reported to the Department of Environmental Protection (DEP), and generally performed under the direction of a Licensed Site Professional (LSP).
• Eligible spending must exceed a minimum threshold based on the property value.
• The project was completed with a Permanent Solution or Remedy Operation Status (ROS) no more than five years ago.

Typical tax credit recipients include commercial property owners; small and large businesses; developers; not-for-profit organizations such as charities and community development corporations (CDCs); and colleges and universities. Agencies of the municipal, state, or federal government are not eligible. Parties may qualify for investigating and/or remediating contamination from a prior use of the site, including the result of historic fill or past practices, whether this condition was known at the time of purchase or discovered later.

Seemingly simple, this is actually a very complex question and involves a fair amount of judgement. MassDOR in its published regulations [830 CMR 63.38Q.1] addresses this issue, including numerous examples.  But many questions remain. In addition, the rules and their applications have tended to evolve over time – so it is imperative to retain expert assistance when considering applying for these credits.

The basic answer is that eligible costs (“net response and removal costs”) are those that are paid by the taxpayer “for the purpose of achieving a Permanent Solution or Remedy Operation Status (ROS) in compliance with MGL c. 21E.

Costs that almost certainly qualify include Licensed Site Professional (LSP) fees, charges for laboratory analysis, contaminated soil remediation (including excavation, transport and disposal), if required to reach a Permanent Solution, treatment or remediation systems, drilling and borings, underground storage tank (UST) removals, and others.

Costs that do not qualify include finance charges, insurance, fines and penalties, DEP fees, costs for the owner’s own time and expenses, loss of revenue, application costs, and others. DOR will exclude any costs that were not included for the purposes of reaching a Permanent Solution or ROS.  In addition, any costs that were or will be reimbursed (e.g., through a government grant or loan, 21J insurance recovery, or lawsuit proceeds) will be removed from the eligible costs.

Costs that may qualify include certain legal costs, demolition, police details, asbestos, geotechnical, ground improvement, paving, and many others depending on site-specific factors.

The credit application and review process seem daunting to many, and there are many opportunities to miss recovering costs. Having been involved in the Massachusetts Brownfields Tax Credit program since the very early days, and having worked on hundreds of applications, our experience is unmatched. We provide value by applying our experience and expertise to your project to maximize your chance of success and maximize the amount of the approved credit.

Program changes in 2006 greatly enhanced this tax credit program. By allowing the credits to be transferred or sold, not-for-profit organizations, out-of-state companies or individuals, or taxpayers with no or limited tax liability can benefit from this program by selling their credits, resulting in cash. 

While Brownfields credits may be applied to reduce your Massachusetts income tax liability, the vast majority are sold for cash. Cooperstown Brownfields LLC is a frequent buyer of credits and is able to monetize them with a minimum of hassle. We have performed many hundreds of such transfers and can process the steps expeditiously and safely. Please contact us should you have credits to be sold.

Like it or not, the answer is almost surely “Yes”.

A 2019 US Court of Appeals case regarding whether a recipient of New York State Brownfield credits had to pay tax on the credits again shines a light on this issue – in our experience, this is one of the most common questions we field.

In Massachusetts, the Brownfield tax credits became transferable in 2006, and a secondary market has developed where credit recipients can sell excess credits at a discount to face value to generate cash. At that time, requests to the Internal Revenue Service (IRS) and Massachusetts Department of Revenue (DOR) regarding the tax status of these sales went unresolved.

Finally, in 2011, the IRS issued a memorandum (ILM201147024) clarifying the tax treatment of Massachusetts Brownfields Tax Credits as well as other transferable state credits. The IRS memo states that the credits are considered a capital asset and the sale of these tax credits can generate a capital gain under the conditions discussed.