When does the brownfield site-preparation credit window close, and do later Phase II construction costs qualify as site preparation costs?

Plain-English summary

A brownfield owner (CoC issued December 19, 2013) whose Phase I project rehabilitated a senior-housing development was planning a Phase II expansion - new buildings (more senior apartments plus a health facility, drugstore, and stores) on vacant parts of the site. It asked: (1) the last year to claim the site-preparation credit (Tax Law § 21(a)(2)), and (2) whether Phase II soil-treatment and CoC-compliance costs are site preparation costs.

The Office of Counsel concluded:
- The site-preparation credit may be claimed for up to five taxable years after the year the CoC issued - so for a 2013 CoC (calendar-year taxpayer), the last year is December 31, 2018.
- Phase II excavation, contaminated-soil treatment, and CoC-compliance costs can qualify as site-preparation costs - only if DEC does not determine Phase II is a prohibited change of use or otherwise violates the brownfield cleanup agreement (BCA) or CoC. A site is eligible for credits only while a valid CoC exists; DEC must get 60 days' notice before any change of use and can modify or revoke the CoC for noncompliance.

What this means for you

Brownfield owners planning a later phase

The site-prep clock is tied to the CoC year (five years after), not when you build. And brand-new construction can be a "change of use" - clear Phase II with DEC first or you risk both the credit and the CoC.

Accountants and tax preparers

Note the contrast: site-preparation credit = five years after the CoC year; tangible-property credit = ten years (see TSB-A-16(2)I). Phase II site-prep costs are contingent on DEC's change-of-use determination. (Substantially the same analysis appears in the later multitax TSB-A-20(13)I/(4)C.)

Common questions

Q: When does my site-preparation credit close?
A: Five taxable years after the year the CoC issued (here, year-end 2018 for a December 2013 CoC).

Q: Do my new Phase II buildings' costs qualify as site preparation?
A: Excavation, soil treatment, and CoC-compliance costs can - but only if DEC doesn't deem Phase II a prohibited change of use or CoC violation.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

Statutes and regulations:
- Tax Law §§ 21(a)(2), 21(b)(1), 21(b)(2)
- ECL §§ 27-1419, 27-1425; 6 NYCRR 375-1.9; DTF Publication 300

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a15_9i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(9)I
Income Tax
December 15, 2015

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

PETITION NO. I140520A

The Department of Taxation and Finance received a Petition for an Advisory Opinion
from REDATEDREDACTED (“Petitioner”). Petitioner requests guidance on two issues
involving the Brownfield Redevelopment Tax Credit under Tax Law § 21.
First, Petitioner asks what is the last date that the site preparation credit under Tax Law §
21(a)(2) may be claimed where a Certificate of Completion (“CoC”) was issued on December
19, 2013. We conclude that the last taxable year the site preparation credit may be claimed is the
year ending December 31, 2018, for site preparation costs incurred by that date, because the site
preparation credit may be claimed for up to five tax years after the year the CoC is issued. 1
Second, Petitioner asks whether certain costs constitute “site preparation costs” within the
meaning of Tax Law § 21(b)(2). Specifically, Petitioner asks whether costs related to a “Phase
II” development of the site, including removal and treatment of contaminated soil, complying
with the CoC, complying with the Department of Environmental Conservation (“ DEC”) site
management plan required by the CoC, complying with the environmental easement required by
the CoC, and other costs incurred by Petitioner for excavating the site for the construction of
additional buildings and other structures, constitute site preparation costs. 2 We conclude that
Petitioner’s Phase II costs for excavation and treatment of contaminated soil, as well as costs of
complying with the CoC, may constitute site preparation costs that qualify for the site
preparation credit as long as DEC does not determine that the proposed Phase II activities
constitute a prohibited change of use or otherwise are found to violate the CoC or existing DEC
approvals.
Facts
Petitioner owns a brownfield site (the “Site” or “Property”). On June 28, 2011, Petitioner
entered into a brownfield site cleanup agreement (“BCA”) under Environmental Conservation
Law (“ECL”) § 27-1409 with the DEC. On December 19, 2013, DEC issued a CoC, as provided
in ECL § 27-1419, to Petitioner.
Like nearly all brownfield sites that receive a CoC, the Site will remain subject to an
environmental easement and a site management plan as required by ECL § 27-1419(2). The site
management plan states that any further excavation on any portion of the Site will be subject to
DEC oversight, and any soil removed from the Site must be treated and disposed of in
accordance with DEC requirements.

1

This conclusion is based on the assumption that the taxpayer has a January 1 – December 31 tax year and will not
have any short tax years.
2
The CoC, site management plan, and environmental easement shall hereafter be collectively referred to as simply
“the CoC.”

-2-

TSB-A-15(9)I
Income Tax
December 15, 2015

Petitioner’s “Phase I” redevelopment of the Site, the project that initially caused
Petitioner to enter into a BCA, is the full interior rehabilitation of an existing affordable senior
housing development. The renovated facility, which was placed in service in 2014, will provide
145 rental apartments to low income seniors. Petitioner is now considering a “Phase II”
redevelopment that would entail construction of several new buildings on vacant portions of the
Site. These buildings would include an additional 170 affordable rental apartments for seniors,
along with neighborhood-oriented commercial and community space. Petitioner contemplates
that this would include a health facility, drugstore, and other stores. The newly-erected buildings
would be physically connected to the existing facility on the Site.
Petitioner did not provide any documentation demonstrating that the activities associated
with Phase II were considered by DEC as part of the BCA, CoC, or any other document
associated with remediation and construction on the Site. Thus, it appears that there has been no
review or consideration of Phase II as part of the Brownfield Cleanup Program process, but
Phase II activities would be subject to the CoC.
Construction of Phase II would require the excavation and removal of a large volume of
soil. Petitioner expects to incur significant costs associated with the excavation, removal, testing,
treatment, and disposal of contaminated soil and any other adverse subsurface conditions that
may come to light during the Phase II activities, including contaminated groundwater.
Analysis 3
The brownfield redevelopment tax credit is comprised of several discrete components
authorized by Tax Law § 21. At issue here is the “site preparation credit component” in Tax Law
§ 21(a)(2). Specifically, the issues are: (1) at what time does the five taxable years begin to run
for purposes of Tax Law § 21(a)(2) and (b)(2)(ii); and (2) are the Phase II costs related to CoC
compliance, and all Phase II costs relating to excavation, removal, treatment, and disposal of
soil, eligible for the site preparation credit.
The site preparation credit component “…with respect to a site’s qualification for a
certificate of completion shall be allowed for the taxable year in which the effective date of the
certificate of completion occurs. The credit component amount determined other than with
respect to such qualification shall be allowed for the taxable year in which the improvement to
which the applicable costs apply is placed in service for up to five taxable years after the
issuance of such certificate of completion.” Tax Law § 21(a)(2). New York State Department of
Taxation and Finance Publication 300 clarifies that, for the portion of site preparation costs that
are not incurred to prepare a site to qualify for the CoC, the credit “…is allowed for up to five
tax years after the year the CoC is issued….” DTF Publication 300, p. 11.
Because the “five taxable years” period during which the site preparation improvement
may be placed in service, and the site preparation credit claimed, begins the year after the CoC is
issued, the last taxable year Petitioner may claim the site preparation credit is the year ending
December 31, 2018.

3

The project discussed in this opinion was issued a CoC on December 19, 2013, and, therefore, the amendments to
the brownfield redevelopment tax credits signed into law on April 13, 2015, L.2015, c.56, Part BB, are not
applicable. L.2015, c.56, Part BB, § 31.

-3-

TSB-A-15(9)I
Income Tax
December 15, 2015

Site preparation costs are defined as all amounts properly chargeable to a capital account:
(1) that are paid or incurred in connection with a site’s qualification for a CoC; and (2) all other
site preparation costs paid or incurred in connection with preparing a site for the erection of a
building or a component of a building, or otherwise to establish a site as usable for its industrial,
commercial (including the commercial development of residential housing), recreational or
conservation purposes. Tax Law § 21(b)(2). Site preparation costs include work such as
excavation, temporary electric wiring, scaffolding, demolition, fencing, and security. Id.
If the costs relating to treatment of contaminated soil and compliance with the CoC were
associated with Phase I, i.e., the project for which the BCA and CoC were issued, there would be
no question that those costs constitute site preparation costs that are eligible for the site
preparation credit. However, Petitioner is seeking a determination regarding Phase II. It is not
clear that the construction and related activities associated with Phase II were contemplated by,
and within the scope of, the BCA and CoC.
The brownfield program requires that the DEC be notified in writing at least 60 days
prior to any change of use at a brownfield site. ECL § 27-1425(1). This requirement is also
contained in the BCA that Petitioner acknowledged and accepted. The DEC shall then notify the
applicant within 45 days if the proposed change in use is prohibited. ECL § 27-1425(2). “Change
of use” includes the erection of any structure on a brownfield site, any activity that is likely to
disrupt or expose contamination or to increase direct human exposure, and any other conduct that
may tend to significantly interfere with an ongoing or completed remedial program at a
brownfield site and the continued ability to implement the engineering and institutional controls
associated with such site. Id. at § 27-1425(3)(a). Pursuant to the BCA, the determination of
whether a change of use has occurred is to be made by DEC. In the event that an applicant, or its
successor or assignee, fails to comply with the BCA, the CoC may be modified or revoked by
DEC. Id. at § 27-1419; 6 NYCRR 375-1.9. A site is only eligible for tax credits under the
brownfield program if a CoC has been issued. Tax Law § 21(b)(1). In other words, if DEC
determines that the Phase II activities constitute a change of use or otherwise violate the BCA or
CoC, the taxpayer may no longer be eligible for brownfield program tax credits.
The cost of treatment and removal of contaminated soil and compliance with the CoC
associated with Phase II would qualify as site preparation costs only if the DEC does not
determine that the Phase II activities constitute a prohibited change of use or otherwise violate
the BCA or CoC. If the proposed Phase II activities do not constitute a prohibited change of use
or otherwise violate the BCA or CoC, then the costs relating to the excavation and treatment of
contaminated soil, as well as compliance with the CoC, may constitute site preparation costs that
are eligible for the site preparation credit component. Petitioner must continue to comply with all
requirements of the BCA, CoC, and applicable law and regulations or risk being denied the
brownfield tax credits, including the site preparation credit. See e.g. ECL § 27-1419(5).

DATED: December 15, 2015

NOTE:

/S/
DEBORAH 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

-4-

TSB-A-15(9)I
Income Tax
December 15, 2015

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.