When does the brownfield site-preparation credit window close after a Certificate of Completion, and do later 'Phase II' development costs qualify as site preparation costs?

Plain-English summary

A corporate subsidiary that helped remediate a brownfield site (CoC issued December 19, 2013) was planning a "Phase II" expansion - new senior-housing and commercial buildings on vacant parts of the site. It asked: (1) what is the last year to claim the site-preparation credit under Tax Law § 21(a)(2), and (2) do Phase II costs (soil excavation/treatment, CoC and site-management-plan compliance) count as site preparation costs?

The Office of Counsel concluded:
- The site-preparation credit runs for the CoC year plus up to five taxable years after. With a 2013 CoC (calendar-year taxpayer), the last year is December 31, 2018, for costs incurred by then.
- Phase II excavation, contaminated-soil treatment, and CoC-compliance costs can qualify as site preparation costs - but only if the Department of Environmental Conservation (DEC) does not determine that 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; the brownfield law requires DEC notice 60 days before any change of use, and DEC can modify or revoke the CoC for noncompliance.

What this means for you

Brownfield developers planning later-phase expansion

The credit clock is tied to the CoC year, not to when you finish building - know your deadline (CoC year plus five). And new construction on a remediated site can trigger "change of use" review: clear Phase II with DEC first, or you risk losing the credit and even the CoC.

Accountants advising corporate and individual claimants

This multitax opinion (Corporation Tax and Income Tax) applies the same § 21 rules to both bases. Confirm the CoC date and tax-year structure to fix the five-year window, and condition any Phase II site-prep credit on DEC's change-of-use determination.

Common questions

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

Q: Do new-building (Phase II) 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), (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-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a20-13i-4c.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE

TSB-A-20(4)C
Corporation Tax
TSB-A-20(13)I
Income Tax
November 3, 2020

ADVISORY OPINION
The Department of Taxation and Finance received a Petition for an Advisory Opinion
from [ REDACTED ] (“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 is the subsidiary of a corporation that undertook the remediation of a
brownfield site (the “Site” or “Property”). On June 28, 2011, the owner of the site entered into a
brownfield cleanup agreement (“BCA”) under Environmental Conservation Law (“ECL”) § 271409 with the DEC. 3 On December 19, 2013, DEC issued a CoC, as provided in ECL § 27-1419,
to the owner as well as Petitioner.

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.”
3
The owner of the site is referred to herein as simply the “owner.”
1

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TSB-A-20(4)C
Corporation Tax
TSB-A-20(13)I
Income Tax

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.
The owner’s “Phase I” redevelopment of the Site, the project that initially caused the
owner 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, provides 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 175 affordable rental apartments for seniors,
along with neighborhood-oriented commercial and community space.
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
The brownfield redevelopment tax credit is comprised of several discrete components
authorized by Tax Law § 21 4. 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

The project discussed in this option 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.
4

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TSB-A-20(4)C
Corporation Tax
TSB-A-20(13)I
Income Tax

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 immediately
after the taxable year in which the CoC is issued, (in this case the taxable year 2013) the last
taxable year Petitioner may claim the site preparation credit is the taxable year ending December
31, 2018.
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. 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. ECL § 271425(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. ECL § 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
prohibited 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

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TSB-A-20(4)C
Corporation Tax
TSB-A-20(13)I
Income Tax

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: November 3, 2020

/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE:

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.