The Massachusetts Underground Storage Tank Program (the “21J program”) was established in 1991 by Massachusetts General Laws Chapter 21J.  The purpose of the 21J program is to “prevent the need for environmental cleanup actions and to expedite environmental cleanup actions by providing partial reimbursement to owners or operators of underground storage tanks  … for costs, expenses and other obligations incurred as a result of releases of petroleum products …” from their underground storage tank (“UST”) systems. (Emphasis added).

Chapter 206 of the Legislative Acts of 1998 established the Massachusetts Brownfields Tax Credit (“BTC”) program.  Section 37 of the BTC states that, “ … no loan or grant shall be made for any environmental site assessment or environmental cleanup action eligible for funding under the [21J Program] .”

The 21J program raises an interesting issue for tax credit consultants who are seeking to ascertain whether a client who has received reimbursement from the 21J program is also entitled to apply for and receive the BTC.

While the 21J program and the BTC at first glance appear to be programs that are mutually exclusive to one another, a closer look might suggest that there is the possibility that a site owner could obtain the benefits of both programs.

By way of background, the BTC is available to certain taxpayers with projects located in Economically Distressed Areas (“EDA”). The BTC covers all types of releases subject to the Massachusetts Contingency Plan (“MCP”).  The BTC in relevant part enables a taxpayer that uses an Activity and Use Limitation (“AUL”) to obtain a tax credit of 25% of the net “response costs” as that term is defined in MGL c. 21E (“21E”).  If an AUL is not used, the tax credit is 50%. The 21E costs that generally are eligible for the BTC are more expansive than the costs that are reimbursable under the 21J program.  In terms of the BTC, any costs that were incurred for the specific purpose of completing a cleanup and meeting the goal of No Significant Risk are eligible costs.  Typical costs that most taxpayers incur include Licensed Site Professional and engineering fees and costs, DEP compliance fees, municipal fees, permit fees, contractor costs, laboratory testing, environmental insurance premiums, legal fees relating to the environmental aspects of the cleanup, soil excavation, transport and disposal costs, cost and transportation of clean fill, monitoring costs, demolition costs (in some circumstances), and other similar costs.

In terms of timing, although the BTC requires you to file in the year in which you achieve a permanent solution or file for an ROS, you can still file for and receive the BTC in the 5 succeeding years following ROS or achievement of a permanent solution (but the credit may be reduced because you will have to amend prior year tax returns to receive credit, and can only transfer the tax credit applicable to the remaining years).

The BTC’s enabling statute added G.L. c. 62, § 6(j) and G.L. c. 63, § 38Q to the Massachusetts General Laws, which allows individuals and business entities a credit against their Massachusetts personal income tax or corporate excise liability for a percentage of the costs incurred for an environmental response action that results in either a permanent solution or remedy operation status in compliance with 21E. Furthermore, the BTC provisions were amended by chapter 123 of the Acts of 2006 to authorize the transfer, sale or assignment of the BTC to another taxpayer with a liability under c. 62 or c. 63 or to a nonprofit organization.

The 21J program on the other hand provides for reimbursement to owners and operators of dispensing facilities for costs incurred in remediating releases from USTs that store petroleum products. A petroleum product, under the 21J program regulations, is defined as gasoline or diesel used to propel a motor vehicle or boat.  While many dispensing facilities receiving reimbursement from the 21J program are located in EDAs, that criterion is not a factor in obtaining eligibility.

To obtain reimbursement from the 21J program, the claimant must adhere to certain requirements with respect to the costs they incur in remediating a release.  For example, the 21J program establishes maximum allowable amounts with respect to certain types of work performed.  Any costs incurred above those amounts will be deemed ineligible.  The 21J program also adheres to strict guidelines and will deem costs ineligible if they are unrelated to the release of a petroleum product (e.g., waste oil, lubricating oil, heating oil, etc.). There is also a limit on the amount that can be reimbursed per site, typically $1.5 million.  The 21J program generally requires that a claim be filed within 365 days of payment of the cost incurred. Statistical data suggests that a claimant can typically anticipate that approximately 15-20% of their costs will be deemed ineligible by the 21J program.

The 21J program will reimburse those amounts unreimbursed by any other source of payment. If the claimant receives reimbursement for any specific costs, expenses or obligations previously reimbursed, then that amount must be returned to the 21J program.  Reimbursement from any other source has generally been interpreted to mean those amounts received from insurance, settlements or a judgment.

It should come as no surprise that many retail dispensing facility owners are closing down their operations. One could speculate that this choice could be the result of many factors, including tougher regulatory operating requirements, greater market competition and foreclosures as a result of economic downturns.  Many of those properties will be left vacant and in need of environmental and building construction repair.  To the savvy entrepreneur, these properties might present their next redevelopment investment, transforming a blighted site into a box store or strip mall.

Circling back to the exclusionary language in the 21J program and the BTC’s enabling statute, it is evident that the BTC is a credit; it is not a “loan” nor is it a “grant.” Assuming that the claimant has not caused the contamination at the disposal site, is it feasible to think that the Commonwealth intended to award taxpayers the ability to achieve a refund for remediation costs, and to then receive a tax credit for those same costs? 

The 2006 amendments that authorized transfer of the BTC seemingly allow a taxpayer to receive 21J reimbursement funds and a BTC, the latter of which it could sell, resulting in it receiving more than what it actually paid for the remediation.  The argument in support of such a result is that while the Commonwealth is giving up tax revenue, studies show that economic activity generated by the BTC amounts to a multiple of the lost taxes. Furthermore, the Commonwealth is entitled to taxes on the BTC proceeds, which serve to revive some of the taxes given up in the first place.

Perhaps the answer to the question hinges on the statutory interpretation of the 21J language, which does not expressly exclude a credit.  It may be a matter of public policy, which allows you to point to the improvements to public safety, community regeneration and the generation of economic activity that flows from remediation of contaminated sites. Finally, it may be a question of simple fairness, in that while the Commonwealth, its citizenry, and communities that are rid of a contaminated area are all beneficiaries, perhaps so too should the 21J recipient who is obligated to invest in remediating contamination that he did not cause be allowed to claim the BTC.  The counter-argument against such an outcome is that a 21J claimant who receives a tax credit or payment from the sale of the BTC is receiving a form of reimbursement from another source.  While this may be a rational interpretation with respect to those costs reimbursed by the 2J program, it is certainly a less compelling argument as to the costs associated with the cleanup that are deemed ineligible for funding. The Department of Revenue, as the administrator of both programs, undoubtedly is the final arbiter on the question of what constitutes a grant, loan, credit or reimbursement from any other source.

Although the answer to the above question is amorphous, what is clear is that it is possible in certain circumstances to obtain the benefits of both programs.  Careful separation of remediation costs and the involvement early on of a CPA or consultant that is familiar with the inner workings of both programs is essential to helping ensure the maximum rates of return to program recipients.

By William Alpine, Corporate Counsel/Director of Cost Recovery, ATC/Warren Kirshenbaum, President, Cherrytree Group, LLC

William Alpine is Corporate Counsel/Director of Cost Recovery for ATC.  He was previously the Executive Director of the Commonwealth of Massachusetts 21J Fund.  ATC has served the petroleum industry with its environmental, due diligence and regulatory compliance needs for over 30 years.  Bill can be reached at (781) 246-8897 or 

Warren Kirshenbaum is the President of Cherrytree Group, LLC, a Massachusetts based consultant, tax credit broker, and syndicator that specializes in Brownfields Tax Credits, Renewable Energy Tax Credits, Solar Energy Credits, and Historic Rehabilitation Tax Credits.

This article has been submitted to the New England Service Station and Automotive Repair Association’s quarterly magazine for publication in their spring issue.

This article is not intended to provide the reader with any form of advice or opinion pertaining to legal, technical or tax matters.  Any such reliance in connection therewith is specifically disclaimed.