NYS Tax Department Rules on Eligibility of Post-COC Costs for BCP Tax Credits

During the Great Recession, many brownfield sites in the lost their project financing. In New York, sites that were remediated and received a Certificate of Completion (COC) remain valuable because owners have ten years to develop the sites and claim the lucrative qualified tangible property (QTP) tax credit (explained below). As market conditions have stabilized, these remediated New York brownfield sites have become attractive investments for developers.

Since the new investors may have development plans that differ from the original project, it may be necessary for the purchaser to incur additional cleanup costs. Recently, the New York Department of Taxation and Finance (DTF) issued an advisory opinion discussing if a purchaser of site with a COC could claim additional site preparation tax credits for additional remediation expenditures incurred to prepare the site for construction of an industrial manufacturing facility.

Under the BCP, applicants may be eligible for a number of tax credits including the Site Preparation Tax Credit and the qualified tangible property (QTP) tax credit. The BCP tax credits are only available for costs incurred after the brownfield cleanup agreement as been executed. Only those parties on the BCA may be named on the COC and only those parties on the COC may claim the BCP tax credit unless the COC is subsequently transferred in accordance with NYSDC regulations.

The site preparation costs include all costs incurred to prepare the site for development and includes cleanup costs as well as costs of excavation, shoring, sheeting, dewatering, fencing, etc that are incurred to qualify for the site for a COC. Additional site preparation tax credits may be available for five taxable years after the COC for costs that are incurred to place the property into service. Since this site was accepted into the BCP in 2006, the site preparation tax credit would be equal to 12% of the site preparation costs paid or incurred by the taxpayer. The applicable percentage that may be claimed could be increased by 8% if the property is in an environmental zone and another 22% if the property been remediated to a track 1 (unrestricted) cleanup standard for a maximum percentage of 22%. This credit component can be first claimed in the taxable year in which the effective date of the COC occurs and it is available for up to five taxable years after the issuance of the COC.

Likewise, the QTP tax credit component for this property would be equal to 12% of the cost of the improvements that were constructed on the brownfield site but could be increased to 22%. The QT tax credit for the tax year that the property is placed into service and for up to ten years after the COC has been issued.

Previously, the DTF has ruled that new buildings, including structural components of buildings, constructed on remediated land meet may be eligible for the QTP tax credit. NY Adv Op Comm T & F TSB-A-04-(1)I. Moreover, the DTF has ruled that costs incurred to rehabilitate existing buildings and construct of new buildings will be eligible for QTP tax credit. NY Adv Op Comm. T & F TSB-A-05-(4)C.

As is the practice with advisory opinions, the identity of the petitioner and the site were redacted. The generic facts are that the petitioner was considering purchasing approximately 15 acres of currently vacant land that had been was accepted into the BCP in 2006. DEC subsequently issued a COC (the date of the COC was redacted) to the current owner. The purchaser planned to enter into an amendment to the Brownfield Clenaup Agreement (BCA) and arrange to have the COC transferred to it in accordance with NYSDEC regulations. The Purchaser planned to construct a manufacturing facility on that site and lease that facility to another entity whose name was also redacted.

Because the additional site preparation costs would have been incurred more than five years after the COC was issued, the DTF concluded that the purchaser could not claim the site preparation credit. NY Adv Op Comm. T & F, TSB-A-13(10)C, Petition No. C130607A (9/10/13).

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