New York Advisory Opinion TSB-A-13(10)C: For the brownfield redevelopment tax credit, can a buyer claim the site-preparation credit after five years, and how is the tangible-property credit allocated for property partly on and off a qualified site?

Plain-English summary

A manufacturer planned to buy part of a brownfield parcel that already had a certificate of completion (COC) under the Brownfield Cleanup Program and build a manufacturing facility, with some structures and equipment spilling onto an adjacent parcel not covered by the COC. It asked several questions about the brownfield redevelopment tax credit (Tax Law § 21).

Site-preparation credit (Tax Law § 21(a)(2)). This component can first be claimed in the COC's effective-date year and is available for up to five tax years after the COC is issued. Here more than five years had passed, so the buyer could not claim it — even for new remediation spending.

Tangible-property credit (Tax Law § 21(a)(3), (b)(3)). This runs for up to ten tax years after the COC year for qualified tangible property (depreciable, four-plus-year life, purchased under IRC § 179(d), with a situs on the qualified site, principally used for industrial/commercial purposes). The COC was issued less than ten years earlier, so the credit was available for qualifying property placed in service on the site.

Allocation for property partly on and partly off the qualified site. For fixed property (a building, or large equipment fixed in place) the Department allowed a square-footage fraction — square footage on the qualified site over total square footage; an item entirely on the site gets 100%. For unfixed property that moves on and off the site (e.g., forklifts stored on-site but used on both parcels), the Department rejected an "originates/terminates on site" theory and required a "principally used" test: compare actual use time on the qualified site to total use time on and off the site (ignore storage time); if more than 50% of use is on the qualified site, the property has its situs there and 100% of its basis counts.

What this means for you

Developers and manufacturers using brownfield sites

Watch the two clocks: five years for site preparation, ten years for tangible property, both measured from the COC. Buying a remediated site late can forfeit the site-prep component entirely. For improvements that straddle the qualified-site boundary, fixed assets are split by footprint, while mobile equipment is tested by where it is actually used more than half the time.

Accountants and tax professionals

A transferred COC lets an assignee claim the tangible-property credit, but acquisition cost of the site and basis already claimed by another taxpayer are excluded, and no credit accrues for costs before the Brownfield Cleanup Agreement is executed. For mobile equipment, document on-site versus off-site use time (excluding storage) to support situs.

Common questions

Q: How long is the brownfield site-preparation credit available? A: Up to five tax years after the certificate of completion is issued. After that it cannot be claimed.

Q: How long is the tangible-property credit available?
A: Up to ten tax years after the year the COC is issued.

Q: How is equipment that moves on and off the qualified site treated? A: By a "principally used" test — more than 50% of actual use time on the qualified site (storage time excluded) gives it a situs there and 100% of basis.

Citations and references

• Tax Law § 21 (brownfield redevelopment tax credit; qualified site = a site with a COC under ECL § 27-1419)
• Tax Law § 21(a)(2) (site preparation component; five tax years after the COC)
• Tax Law § 21(a)(3), § 21(b)(3) (tangible property component; ten tax years; qualified tangible property and situs)
• IRC § 179(d) (acquired by purchase); IRC § 167 (depreciable); Environmental Conservation Law § 27-1409, § 27-1419

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a13_10c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-13(10)C
Corporation Tax
September 10, 2013

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C130607A

The Department of Taxation and Finance (DTF) received a Petition for Advisory Opinion from name and address redacted. Petitioner asked a series of questions about the applicability of the brownfield redevelopment tax credit if a portion of a parcel of real property at address redacted that was entered into the Brownfield Cleanup Program in 2006 is purchased. First, Petitioner asked whether DTF would permit a taxpayer that purchases property for which a certificate of completion (“COC”) has been issued to claim the site preparation credit component under § 21 of the Tax Law if the taxpayer incurs additional remediation expenditures in order to prepare the qualified site for construction of an industrial manufacturing facility. We conclude that the taxpayer cannot claim the site preparation credit component because more than five years has passed since the COC was issued. Second, Petitioner asked whether DTF will permit the use of certain allocation formulas to determine the tangible property credit component under § 21 of the Tax Law for property located only partially on a qualified site under the Brownfield Cleanup Program. We conclude that such allocations are appropriate for fixed property, but that a principal use test should be used for unfixed property that is used both on and off the qualified site. Facts Petitioner, name redacted., is the sole owner of 100% of the stock of name redacted (“name redacted” or the “taxpayer”). Name redacted owns name redacted (“LLC”), a singlemember limited liability company that is treated as a disregarded entity of name redacted for federal income tax and New York State corporate franchise tax purposes. Petitioner and name redacted are corporations for federal income and New York State corporate franchise tax purposes. Name redacted would be subject to taxation under Article 9-A of the Tax Law if it undertakes the activities described herein. LLC is considering purchasing a portion of a parcel of real property located at address redacted. LLC will be purchasing approximately 15 acres of currently vacant land (the “Property”). The Property was entered into the Brownfield Cleanup Program when the current owner of the Property entered into a Brownfield Cleanup Agreement (“BCA”) with the New York Department of Environmental Conservations (DEC). The current owner’s application to enter the Brownfield Cleanup Program was approved in August, 2006. Thereafter, DEC issued a COC on issue date redacted to the current owner. The COC applies to real property at address redacted, including the portion that LLC will be purchasing. In connection with any acquisition

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TSB-A-13(10)C
Corporation Tax
September 10, 2013

of the Property, LLC and Name redacted will enter into an amendment to the BCA to become parties to the agreement and will take the appropriate steps to have the COC transferred to them. In addition, LLC may purchase adjacent real property that is not covered by the COC (“the Parcel”). If LLC acquires the Property, LLC will construct a manufacturing facility on that site and lease that facility to name redacted where it will conduct its manufacturing activities. The manufacturing facility will be depreciable under § 167 of the Internal Revenue Code, have a useful life of at least four years, be acquired by purchase from an unrelated party, be placed in service in either 2014 or 2015, and have a situs on a qualified site. Depending upon the ultimate manufacturing facility design, a portion of the facility may extend onto the Parcel. In addition, LLC may construct a storage building or other outbuilding located on the Parcel. In connection with the foregoing, name redacted will purchase from unrelated parties various equipment, machinery, forklifts, and other similar items, most of which will be placed in service in 2014 or 2015, will be depreciable under § 167 of the Internal Revenue Code, and will have a useful life of at least four years. Some equipment or machinery will be located entirely on that portion of the manufacturing facility that is located on the Property. However, a small portion of the equipment or machinery may intrude upon that portion of the manufacturing facility that is located on the Parcel. Name redacted intends to store its forklifts on the Property; however, forklifts will be used to transport raw materials from the outbuilding located on the Parcel to the manufacturing facility located on the Property. It is currently expected that the tax years involved with respect to this petition will include 2013, 2014, and 2015. However, subsequent tax years may be involved depending upon changing circumstances. Analysis The Tax Law provides a brownfield redevelopment tax credit to taxpayers subject to tax under Articles 9, 9-A, 22, 32 and 33 of the Tax Law. (Tax Law § 21). A qualified site is a “site with respect to which a certificate of completion has been issued to the taxpayer by the Commissioner of Environmental Conservation pursuant to § 27-1419 of the Environmental Conservation Law.” (Tax Law § 21[b][1]). For any taxable year, the amount of the credit will be the sum of the relevant credit components. In this situation, Petitioner is asking about the site preparation and tangible property credit components. (Tax Law § 21[a][1]-[3]). Petitioner asserts that name redacted will be subject to taxation under Article 9-A of the Tax Law. The property at address redacted being considered for purchase is currently listed on the DEC website as being in the Brownfield Cleanup Program and a COC was issued for this property on issue date redacted. As the result of the purchase, name redacted asserts that it will be a party to a BCA under Environmental Conservation Law (ECL) § 27-1409, and will have a COC (issued before March 31, 2015) as a result of a transfer or sale of the qualified site by the person who originally received the COC. Name redacted will have to follow any rules and

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TSB-A-13(10)C
Corporation Tax
September 10, 2013

regulations of DEC to successfully ensure that it is named on the BCA and the COC has been transferred to name redacted. Provided the COC is transferred to name redacted, the Property will be a “qualified site” for purposes of this credit. The site preparation credit component would be equal to twelve percent1 of the site preparation costs paid or incurred by the taxpayer with respect to a qualified site if the taxpayer is claiming the credit under Article 9-A of the Tax Law. (Tax Law §§ 21[a][2] and 21[a][5]). 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. The COC was issued on issue date redacted for the qualified site. More than five years have passed since the COC was issued, so the taxpayer is not allowed to claim the site preparation credit component. The tangible property credit component is the product of the cost (or other basis of the property, as computed for federal income tax purposes) of qualified tangible property placed in service on a qualified site multiplied by twelve percent2 if the taxpayer is claiming the credit under Article 9-A of the Tax Law. (Tax Law § 21[a][3]). In determining the cost or other basis of the qualified property, the taxpayer must exclude the acquisition cost of any item of property for which a brownfield redevelopment tax credit was allowable to another taxpayer.3 No credit is allowed for any costs paid or incurred before the execution of the BCA. A taxpayer who received a COC may transfer the benefits and burdens of the COC that run with the land by assigning those benefits and burdens upon transfer or sale of all or any portion of an interest in the qualified site. However, the taxpayer to whom the COC’s benefits and burdens are transferred cannot include as eligible costs (1) the cost of acquiring all or any portions of any interest in the site, and (2) amounts included in the cost or other basis for federal income tax purposes of the qualified tangible property already claimed by another taxpayer.4 As relevant here, qualified tangible property is tangible personal property, and other tangible property, including building and structural components of buildings, which meets all of the following conditions:5

1

The statute increases the percentage if the property is in an environmental zone or has been remediated to track 1. These conditions are not relevant to this opinion. 2 The statute increases the percentage if the property is in an environmental zone or has been remediated to track 1. These conditions are not relevant to this opinion. 3 For purposes of the Petition, we are assuming that the taxpayer is not acquiring from the current owner any qualified tangible property in this transaction. 4 For purposes of the Petition, we are assuming that the taxpayer is not acquiring from the current owner any qualified tangible property in this transaction. 5 Certain other tangible personal property may qualify under Tax § 21(b)(3)(B).

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TSB-A-13(10)C
Corporation Tax
September 10, 2013

The property:
 is depreciable under the Internal Revenue Code (IRC) §167;
 has a useful life of four or more years;
 is acquired by purchased as defined in IRC § 179(d);
 has a situs on a qualified site in New York State; and
 is principally used by the taxpayer for industrial, commercial, recreational, or environmental conservation purposes (including the commercial development of residential housing). (Tax § 21[b][3][A]. The tangible property component may be claimed for qualified tangible personal property placed in service on the qualified site for up to 10 tax years after the year the COC is issued. Presuming that name redacted takes all necessary steps required by DEC with regards to the BCA and COC, which was issued less than 10 years ago, the tangible property credit component should be available for qualified tangible property placed in service on the qualified site through the tax year redacted tax year. If name redacted commences its business operations on the qualified site, name redacted claims that the tangible property it acquires or constructs will fully satisfy the requirements specified above with the possible exception of the siting requirement. As long as the tangible property meets all of these requirements in full, it is qualified tangible property as required by the tangible property credit component. (Tax Law § 21[b][3]). Name redacted expects that 90% of the building and components will be located on the qualified site and the balance of the building will extend onto the Parcel. Name redacted requests that the Department permit name redacted to allocate the cost basis of the building structure located on the qualified site by multiplying the cost basis of the building by a fraction, the numerator of which is the amount of the square footage of the building on the qualified site and the denominator of which is the square footage of the entire building. Using this formula to allocate the cost basis of a building to the qualified site is a reasonable approach for allocation. Petitioner requests that the Department permit name redacted to use 100% of the cost basis of the tangible property components of or in the building that are separately depreciable, such as furnaces, boilers, manufacturing equipment, and are entirely located on the qualified site, for purposes of determining the amount of the tangible property credit component. If one of these items is completely located on the qualified site, it would be appropriate to allocate 100% of the cost basis of that item to the qualified site. If the item is partially located on the qualified site and partially located off the qualified site, it would be appropriate to use the same square footage formula used above to allocate the building costs. For equipment and other tangible property that are fixed into place and are located partially on the qualified site and located partially on the Parcel, such as large pieces of equipment used in the manufacturing process, Petitioner requests that the Department allow name redacted to determine the amount of the tangible property credit component of that

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TSB-A-13(10)C
Corporation Tax
September 10, 2013

equipment and tangible property allocable to the qualified site by multiplying the cost basis of the equipment or tangible property by a fraction, the numerator of which is the amount of square footage of the equipment or tangible property located on the qualified site and the denominator of which is the square footage of the entire piece of equipment or tangible property. Using this formula to allocate the cost basis of large pieces of equipment or tangible property that are fixed into place is a reasonable approach for allocation. For forklifts and other tangible property that are stored on the qualified site but move between the qualified site and the Parcel, Petitioner requests that the Department permit name redacted to determine the amount of the tangible property credit component by allocating 100% of the cost basis of such tangible property to the qualified site because the property will be stored overnight on the qualified site and the activities of the property will originate and terminate on the qualified site. Petitioner contends that this demonstrates that the property will have a situs on the qualified site. We do not agree that the origination and termination location on a qualified site is sufficient to establish that property has a situs on a qualified site. Instead, we conclude that it would be appropriate to use a “principally used” test to determine whether the tangible property has situs on the qualified site. In calculating principal use, the taxpayer should compare the time the tangible property is actually used on the qualified site to the total time used on both the qualified site and outside the qualified site. However, no consideration should be given to the storage time of the property. If the property is used more than 50% of the time on the qualified site, we conclude that the property has a situs on the qualified site and 100% of the cost basis could be used to calculate the tangible property credit component.

DATED: September 10, 2013

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. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.