Massachusetts Brownfields Update—Appeals Court Holds Nonprofits May Receive Tax Credits, With No Deference to Agency’s “Incorrect Statutory Interpretation”

Posted on February 22, 2018 by Ruth H. Silman

The Massachusetts Brownfields Tax Credit program allows individuals and businesses a credit against their state personal income tax or corporate excise liability for a percentage of the costs incurred for environmental response actions that result in either a “permanent solution” or “remedy operation status” under the Massachusetts remediation regulations.

As enacted in 1998, the Brownfields Tax Credit program excluded non-profits because they would have no income tax liability.  But in 2006, the Legislature amended the program to allow taxpayers to transfer the Brownfields Tax Credits and so non-profits were added, enabling those entities with insufficient tax liability to benefit from the program in the same manner as for-profit companies and other taxpayers.  Importantly, the 2006 amendment made all recipients of tax credits eligible for a percentage of response costs incurred retroactively to August 1, 1998.

The program thrived between 2006 and 2012, but this activity drew the attention of politicians due to the significant drain on the budget.  In late 2012, the Massachusetts Department of Revenue (MassDOR, the agency administering the Brownfields Tax Credits program) received applications from three local colleges—Northeastern University, Boston University, and Wellesley College.  These three applications totaled almost $20 million.  This proverbial straw across the camel’s back caused MassDOR to reevaluate the program. 

In 2013, MassDOR abruptly changed its practice. It issued a “clarification” known as Directive 13-4 “Guidance with Respect to Brownfields Tax Credit Applications”.   Directive 13-4 stated that a non-profit organization may receive a credit based upon documentation of a permanent solution or a remedy operation status submittal only for taxable years that commenced on or after June 24, 2006, the date that non-profits were added to the program.  Furthermore, MassDOR would apply Directive 13-4 to all pending and future applications.  Relying on Directive 13-4, MassDOR denied the claims from the three universities.

The three universities (along with a private party) sued MassDOR.  In 2016, the trial court ruled for the plaintiffs, holding that Directive 13-4 was “unreasonable” and that MassDOR’s “denial of the applications based on that directive was unlawful”, based on the unambiguous and explicit language of the statute.  On December 28, 2017, the Massachusetts Appeals Court affirmed the trial court’s decision, holding that if the Legislature had intended to limit the timeframe for eligibility of nonprofit organizations’ applications, “it certainly knew how to do so.”  In the absence of direct language in the statute supporting the agency interpretation, the Appeals Court found that MassDOR’s interpretation in Directive 13-4 was entitled to no deference due to its “incorrect statutory interpretation.” 

MassDOR has applied for further appellate review by the Supreme Judicial Court, but it appears that MassDOR is now busy processing all of the nonprofit applications that have been languishing since 2013.  Perhaps the colleges, universities, hospitals, and other nonprofits will finally receive the equal treatment that they so rightly deserve.