New York Advisory Opinion TSB-A-11(9)C: Can the brownfield redevelopment tax credit be claimed for improvements placed in service before the certificate of completion is issued, if the certificate issues in the same taxable year?

Plain-English summary

The petitioner is a Maryland corporation cleaning up and redeveloping a contaminated former industrial site (a 'brownfield') in Nassau County into residential buildings, as a Volunteer under a Brownfield Cleanup Agreement with the state DEC. It expects to place a finished building in service before the DEC issues the site's certificate of completion (CoC), but anticipates the CoC will issue in the same taxable year. Because the DEC controls CoC timing and economics may force the building into use first, the petitioner asked whether it could still claim the tangible-property component of the brownfield redevelopment tax credit on those improvements.

The Department said yes. The tangible-property credit (Tax Law § 21(a)(3)) is based on the cost of qualified tangible property -- property that is depreciable under IRC § 167, has a 4-year-plus life, was acquired by purchase, has a situs on a qualified site, and is used for qualifying purposes (Tax Law § 21(b)(3)). A site doesn't become a 'qualified site' until a CoC issues, and after issuance the taxpayer has up to ten more years to place qualified property in service. The statute describes the credit window using taxable years, not exact dates. Reading § 21 consistent with the program's purpose -- encouraging cleanup and redevelopment of sites that aren't economically viable -- the Department concluded that improvements placed in service during the same taxable year the CoC is issued qualify, even if the placed-in-service date precedes the issuance date. The credit is not limited to property placed in service only after the CoC date.

What this means for you

Brownfield developers

If construction realities force you to open a building before the DEC issues the certificate of completion, you don't lose the tangible-property credit -- as long as the certificate issues in the same taxable year. The statute counts by taxable year, giving you some slack around the exact issuance date.

Accountants and tax professionals

The credit still requires a 'qualified site,' which exists only once a CoC is issued, and the property must meet all five § 21(b)(3) tests. The taxpayer-favorable timing reading is grounded in the legislative purpose; document that the placed-in-service date and the CoC issuance fall in the same taxable year.

Common questions

Q: Can you claim the brownfield credit for property placed in service before the certificate of completion? A: Yes, if the certificate of completion is issued in the same taxable year the property is placed in service.

Q: Why does same-year timing work?
A: Tax Law § 21 frames the credit window in taxable years, and reading it to match the program's cleanup-incentive purpose allows same-year improvements to qualify.

Q: Is a certificate of completion still required?
A: Yes. The site becomes a 'qualified site' only when the certificate of completion is issued; without it the property isn't qualified tangible property.

Citations and references

• Tax Law § 21(a)(3) (tangible property credit component of the brownfield redevelopment credit)
• Tax Law § 21(b)(3) (definition of qualified tangible property; qualified site requirement)
• Internal Revenue Code § 167 (depreciable property; placed-in-service concept)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a11_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-11(9)C
Corporation Tax
October 31, 2011

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C110316A

The petition of name redacted (the Petitioner) requests an advisory opinion regarding the application of the brownfield redevelopment tax credit to certain facts set forth in the Petition. Petitioner asks whether, under Section 21 of the New York Tax Law (the "Brownfield Redevelopment Tax Credit"), the Petitioner may claim the credit for the cost of improvements placed in service prior to the date of issuance of a certificate of completion (“CoC”) if the certificate is issued during the same taxable year that the improvements are placed in service. We conclude that Petitioner may claim the full amount of such credits. Facts The facts as presented in the Petition are as follows: The Petitioner is a Maryland corporation qualified to do business in New York State that owns a site (the "Site") in Nassau County on which it is constructing two buildings to be used as multiple residential units. The Site is a former industrial property that is contaminated with certain hazardous substances, commonly known as a "Brownfield." The Petitioner is a Volunteer under an amended Brownfield Cleanup Agreement ("BCA") with the New York State Department of Environmental Conservation ("DEC") effective October 18, 2007, under the New York State Brownfield Cleanup Program. On or about September 7, 2004, name redacted submitted a certified application to DEC to enter the Brownfield Cleanup Program. Name redacted entered into a BCA with DEC as a Volunteer; the Agreement was effective on October 29, 2005. On or about August 23, 2007, Petitioner submitted a certified application to DEC to be added to the existing BCA as a Volunteer. The BCA was amended to include Petitioner as a Volunteer; the Amended Agreement was effective October 18, 2007. The Amended BCA obligates Petitioner to clean up and remediate the Site, and contemplates the redevelopment of the Site by the construction of new residential buildings. Petitioner is expending all of the clean-up and construction funds with respect to the Site and is solely responsible for the design, construction, and financing of the two buildings to be constructed on the Site, which Petitioner intends to use for the commercial development of residential housing. One building, consisting of 210 residential units (the "North Building"), is scheduled to complete construction (including associated environmental remediation) and be ready for occupancy in June of 2011. While Petitioner has already submitted a remedial action plan for review, it is anticipated that Petitioner will not be able to procure a CoC for the Site until after the North Building is completed and ready for occupancy. However, it is anticipated that the CoC will be issued during the same taxable year that the improvements are placed in service.

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TSB-A-11(9)C
Corporation Tax
October 31, 2011

Analysis
The focus of the Petition is the tangible property credit component of the “Brownfield Redevelopment Tax Credit” which is set forth in Tax Law §21(a)(3). This credit is based on the cost or other basis, for Federal Income Tax purposes, of tangible personal property and other tangible property, including buildings and structural components of buildings, which constitute qualified tangible property (“QTP”). QTP is defined in Tax Law §21(b)(3) as property which satisfies all of the following five requirements: (A) is depreciable pursuant to §167 of the Internal Revenue Code; (B) has a useful life of four years or more; (C) has been acquired by purchase as defined in §179(d) of the Internal Revenue Code; (D) has a situs on a qualified site in this State; and (E) is principally used by the taxpayer for industrial, commercial, recreational or environmental conservation purposes (including the commercial development of residential housing). Section §21(a)(3) of the Tax Law describes the tangible property credit component in part as follows: The tangible property credit component shall be equal to the applicable percentage of the cost or other basis for federal income tax purposes of tangible personal property and other tangible property … which constitute qualified tangible property. The credit component amount so determined shall be allowed for the taxable year in which such qualified tangible property is placed in service on a qualified site with respect to which a certificate of completion has been issued to the taxpayer for up to ten taxable years after the date of the issuance of such certificate of completion. The prerequisite for being allowed to claim the tangible property credit is placing the property in service on a qualified site where a CoC has been issued with respect to the site. “The period for depreciation of an asset shall begin when the asset is placed in service…” 26 CFR
§1.167(a)-10. After a CoC has been issued, for purposes of the tangible property credit, a taxpayer has ten additional years to place “qualified tangible property” in service on the qualified site. Under the statutory definition of “qualified site”, a site does not become a “qualified site” until after a CoC is issued. If the property does not have a situs on a “qualified site”, the property is not “qualified tangible property”, and therefore, the costs associated with the property are not eligible for the credit.

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TSB-A-11(9)C
Corporation Tax
October 31, 2011

In this case, it is expected that the improvements will be placed in service in the same taxable year the CoC is issued. The placed in service date, however, will precede the date of issuance. The issuance of a CoC is under the sole control of the DEC. While the issuance of the CoC is pending, economic circumstances may require the taxpayer to place the property in service. The purpose of the Brownfield Cleanup Program is to encourage persons to clean up and develop contaminated sites that are not economically viable. The tax credits serve as an incentive to clean up such brownfield sites and place improvements on the site. The language in the statute that describes the time period during which the credit is allowed uses taxable years as the standard. It is a reasonable interpretation of the Law and consistent with the Legislative purpose of the BCP to conclude that the improvements here that are placed in service during the taxable year in which the CoC is issued qualify for the tangible property credit component. We do not construe the statute to limit the credit solely to improvements placed in service after the date the CoC has been issued. The credit will be allowed as long as property is placed in service in the same taxable year that the CoC is issued.

DATED: October 31, 2011

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion.