Massachusetts Brownfields Tax Credit

Client Alert
July 16, 2021

In a bid to rehabilitate the Brownfields Tax Credit ("BTC") application and approval process, the Massachusetts Department of Revenue ("DOR") has issued final regulations (830 CMR 63.38Q.1) and new administrative procedures (AP 636) governing credit applications received on or after July 9, 2021. These are expected to be promulgated and become official on July 23, 2021. They bring to a close a lengthy review process that began with a working draft in Spring 2020, followed by proposed regulations in January 2021.

The Massachusetts BTC is a non-refundable tax credit allowed to “Eligible Persons,”[1] as defined under the Massachusetts Oil and Hazardous Material Release Prevention and Response Act (Mass. Gen. Laws Ch. 21E), for a percentage of costs incurred in achieving a permanent solution (or remedy operation status) in remediating contaminated property that is owned or leased for business purposes and also is located in an economically distressed area. A credit is available for 25% of costs for sites cleaned up with an activity and use limitation (AUL) and 50% for sites without an AUL. To be eligible for the credit, the costs (less any reimbursements received) must total at least 15 percent of the assessed value of the property before remediation.

The regulations go to great length to distinguish costs that are incurred to achieve a permanent solution (and thus are BTC eligible) from those related to other activities, such as building construction, that may occur in connection with an environmental remediation and which DOR considers ineligible. DOR’s characterization of costs has previously led to disputes over availability of the credit and assertions that it is second guessing the environmental experts. The final regulations continue the draft regulations’ robust description of eligible and non-eligible costs, along with examples. While DOR retains discretion to make determinations that vary from the examples, the regulations provide needed clarity as to what costs are eligible for the BTC.

Additionally, the final regulations and procedures contain several significant changes from the January 2021 proposed regulations. For example:

Although disagreement may remain over where DOR has drawn the line between eligible and ineligible costs, the final regulations and procedures promise to standardize and speed up the BTC process.

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[1] Eligible Persons under Chapter 21E include certain “innocent” owners and operators of a contaminated site who did not cause or contribute to the release of contaminants and did not own or operate the site at the time of the release.

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