For the brownfield redevelopment tax credit, do new buildings built on a remediated site count toward the tangible property credit, can LLC partners claim their share on their personal income tax returns, and do cleanup costs paid before the credit's 2005 effective date still qualify?

Plain-English summary

Frederick Elghanayan, H. Henry Elghanayan and Kamran T. Elghanayan are the three principal owners of Master HTF, LLC, a New York LLC treated as a partnership for tax purposes. Through a chain of other partnership or disregarded entities, Master owns or will own membership interests in seven New York LLCs (the "East Coast LLCs"), each of which leases contaminated former industrial land - a brownfield - in New York City under a 99-year land lease. The East Coast LLCs are enrolled in the state's Voluntary Cleanup Program, plan to remediate the land and obtain a Certificate of Completion (a "remediation certificate") from the Department of Environmental Conservation, and plan to construct new buildings on the cleaned-up site.

The Petitioners asked the Department three questions about the brownfield redevelopment tax credit under Tax Law § 21: (1) whether the cost of constructing new buildings and their structural components on a qualified site counts toward the credit's tangible property component; (2) whether the credit, earned at the partnership level, can be allocated to individual partners for use against their personal income tax; and (3) whether cleanup costs paid after a brownfield site agreement is signed, but before the credit's effective date (the first tax year beginning after April 1, 2005), can still be counted.

The Department answered yes on all three points. New buildings and structural components built on the remediated land qualify as "qualified tangible property" under § 21(b)(3) if they meet that provision's conditions, so they count toward the tangible property credit component. Because a partnership is not itself a taxable entity in New York - its activities flow through to its partners under Article 22 - and because an LLC classified as a partnership for federal tax purposes is treated the same way for New York personal income tax purposes, each Petitioner, as a partner of Master, could claim his allocable share of the brownfield credit under Tax Law § 606(dd). And under § 21(a)(6), qualifying costs are simply those paid or incurred on or after the date of the brownfield site agreement - so costs incurred in that window, even before the credit's 2005 effective date, could be included in the credit computation.

The opinion relied on three earlier advisory opinions involving investment tax credits and empire zone credits - John J. Eagan (1987), Bruce Nadell (1996), and Sutherland Asbill & Brennan (2001) - each of which held that where a partnership or LLC-partnership owns qualifying property, its partners or members can claim their allocable share of the resulting credit on their own returns. The Department extended that same logic to the brownfield redevelopment credit. It expressly did not address whether the credit could be claimed if the Certificate of Completion or the in-service date for the property occurred before the first tax year beginning after April 1, 2005.

What this means for you

Developers and investors using an LLC or partnership to remediate a brownfield

If you're cleaning up a contaminated site through an LLC or partnership taxed as a partnership, new buildings and structural components you construct on the remediated land can be included in the tangible property credit component of the § 21 brownfield redevelopment credit, provided they meet the qualifying conditions in § 21(b)(3). You don't lose the credit just because the entity holding title is a pass-through rather than the ultimate taxpayer - each partner can claim an allocable share on Article 22 personal income tax returns under § 606(dd).

Timing your cleanup costs and the brownfield site agreement

The credit only reaches costs paid or incurred on or after the date the brownfield site agreement is executed with the Department of Environmental Conservation. Costs incurred in that window can be used to compute the credit components even if they're paid before the credit's effective date (the first tax year beginning after April 1, 2005) - but this opinion does not resolve what happens if the Certificate of Completion or the in-service date itself falls before that effective date.

Accountants and tax professionals

When a client's brownfield cleanup runs through a multi-tier structure of LLCs and partnerships, look through the entity to confirm that individual partners can claim the § 606(dd) credit - the Department applies the same pass-through analysis it has long used for investment tax credits and empire zone credits.

Common questions

Q: Do costs of building new construction on a brownfield count toward the tax credit?
A: Yes. The cost or basis of new buildings and their structural components qualifies for the tangible property credit component under Tax Law § 21(a)(3) if the property meets the conditions in § 21(b)(3).

Q: Can individual partners of an LLC claim the brownfield credit on their personal returns?
A: Yes. Because the LLC is treated as a partnership and a partnership isn't a New York taxable entity, each partner can claim his allocable share of the credit under Tax Law § 606(dd), following the same reasoning applied to investment tax credits and empire zone credits in prior advisory opinions.

Q: Do costs paid before the credit's 2005 effective date still count?
A: Yes, as long as they were paid or incurred on or after the date the brownfield site agreement was executed. Tax Law § 21(a)(6) ties eligible costs to that agreement date, not to the credit's effective date.

Q: Does this opinion cover every timing scenario for the credit?
A: No. The Department specifically declined to address whether the credit could be claimed if the Certificate of Completion is issued, or the property is placed in service, before the first taxable year beginning after April 1, 2005.

Citations and references

• Tax Law § 21(a)(3) - tangible property credit component of the brownfield redevelopment tax credit
• Tax Law § 21(a)(6) - qualifying costs limited to those paid or incurred on or after the brownfield site agreement date
• Tax Law § 21(b)(1) and (5) - definitions of "qualified site" and "remediation certificate"
• Tax Law § 2.6 - partnership includes a limited liability company and its members
• Tax Law § 606(dd) - brownfield redevelopment tax credit against personal income tax
• Environmental Conservation Law § 27-1419 - certificate of completion (remediation certificate)
• John J. Eagan, Norris, McLaughlin & Marcus, TSB-A-87(9)C (1987) - partner's allocable share of investment tax credit
• Bruce Nadell, TSB-A-96(12)C (1996) - LLC member's allocable share of investment tax credit
• Sutherland Asbill & Brennan, TSB-A-01(1)C (2001) - LLC member's allocable share of empire zone investment tax credit

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a04_1i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(1)I
Income Tax
April 1, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I040129A

On January 29, 2004, a Petition for Advisory Opinion was received from Frederick
Elghanayan, H. Henry Elghanayan and Kamran T. Elghanayan, c/o Jack Mandel, Bryan Cave, LLP,
1290 Avenue of the Americas, New York, New York 10104.
The issues raised by Petitioners, Frederick Elghanayan, H. Henry Elghanayan and Kamran T.
Elghanayan, are:

1. Whether for purposes of the brownfield redevelopment tax credit under section 21 of the
   Tax Law, relating to the Brownfield Cleanup Program (Title 14 of Article 27 of the
   Environmental Conservation Law, as added by Chapter 1 of the Laws of 2003), the costs of
   constructing new buildings and structural components of buildings on a qualified site are
   included in the tangible property credit component.
2. Whether the tax credit components contained in section 21 of the Tax Law relating to the
   Brownfield Cleanup Program and applicable to the cleanup and redevelopment of a qualified
   site by a partnership, can be allocated to the partners of such partnership for use against the
   partners’ New York personal income tax liabilities.
3. Whether the costs incurred in the cleanup and redevelopment of a qualified site after a
   Brownfield Site Agreement has been entered into, but before the first taxable year beginning
   after April 1, 2005 (the effective date of the tax credit provisions), are included in
   determining the tax credit components contained in section 21 of the Tax Law.
   Petitioners submit the following facts as the basis for this Advisory Opinion.
   Master HTF, LLC (Master) is a New York limited liability company (LLC) that is treated
   as a partnership for federal and New York State income tax purposes. The three principal owners
   of Master are Petitioners. Each Petitioner is an individual taxpayer under Article 22 of the Tax Law.
   Master, indirectly through one or more entities that are treated as partnerships or disregarded
   entities for federal and New York State tax purposes, owns, or will own, some or all of the
   membership interests in East Coast 1 LLC, East Coast 2 LLC, East Coast 3 LLC, East Coast 4 LLC,
   East Coast 5 LLC, East Coast 6 LLC and East Coast 7 LLC (each a New York LLC and collectively
   the “East Coast LLCs”.)
   Each of the East Coast LLCs is the lessee of land located in the City of New York (“Land”)
   pursuant to a 99 year land lease from Queens West Development Corporation, a New York
   corporation and a subsidiary of the New York State Urban Development Corporation d/b/a the
   Empire State Development Corporation, a New York public benefit corporation.

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The Land is a former industrial site which is contaminated with certain hazardous substances,
commonly known as a brownfield. The East Coast LLCs currently plan to clean up and remediate
the Land, and they currently plan to construct new buildings on the Land. The East Coast LLCs are
currently participants in a Voluntary Cleanup Program administered by the New York State
Department of Environmental Conservation (“DEC”).
Master will own the membership interests in the East Coast LLCs at the time a Certificate
of Completion (Remediation Certificate) is obtained from DEC by each of the East Coast LLCs with
respect to the remediated property of each of the respective East Coast LLCs.
For purposes of this Advisory Opinion, it is assumed that the improvements or property
placed in service with respect to the remediation of the Land will not be placed in service before the
first taxable year beginning after April 1, 2005.
Applicable law
Section 2.6 of the Tax Law provides that partnership and partner “unless the context
requires otherwise, shall include, but shall not be limited to, a limited liability company and a
member thereof, respectively.”
Section 21 of the Tax Law, as added by Chapter 1 of the Laws of 2003, provides for a
brownfield redevelopment tax credit, in part, as follows:
(a) Allowance of credit. (1) General. A taxpayer subject to tax under article nine,
nine-A, twenty-two, thirty-two or thirty-three of this chapter shall be allowed a credit against
such tax, pursuant to the provisions referenced in subdivision (f) of this section. Such credit
shall be allowed with respect to a qualified site, as such term is defined in paragraph one of
subdivision (b) of this section. The amount of the credit in a taxable year shall be the sum
of the credit components specified in paragraphs two, three and four of this subdivision
applicable in such year.
(2) Site preparation credit component. The site preparation credit component shall
be equal to the applicable percentage of the site preparation costs paid or incurred by the
taxpayer with respect to a qualified site. The credit component amount so determined with
respect to a site’s qualification for a remediation certificate shall be allowed for the taxable
year in which the effective date of the remediation certificate 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 remediation certificate.
(3) Tangible property credit component. The tangible property credit component
shall be equal to the applicable percentage of the cost or other basis for federal income tax
purposes of tangible personal property and other tangible property, including buildings and
structural components of buildings, which constitute qualified tangible property. The credit

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component amount so determined shall be allowed for the taxable year in which such
qualified tangible property is placed in service on a qualified site with respect to which a
remediation certificate has been issued to the taxpayer for up to ten taxable years after the
date of the issuance of such remediation certificate. The tangible property credit component
shall be allowed with respect to property leased to a second party only if such second party
is either (i) not a party responsible for the disposal of hazardous waste or the discharge of
petroleum at the site according to applicable principles of statutory or common law liability,
or (ii) a party responsible according to applicable principles of statutory or common law
liability if such party’s liability arises solely from operation of the site subsequent to the
disposal of hazardous waste or the discharge of petroleum, and is so certified by the
commissioner of environmental conservation at the request of the taxpayer, pursuant to
section 27-1419 of the environmental conservation law. Notwithstanding any other
provision of law to the contrary, in the case of allowance of credit under this section to such
a lessor, the commissioner shall have the authority to reveal to such lessor any information,
with respect to the issue of qualified use of property by the lessee, which is the basis for the
denial in whole or in part, or for the recapture, of the credit claimed by such lessor.
(4) On-site groundwater remediation credit component. The on-site groundwater
remediation credit component shall be equal to the applicable percentage of the on-site
groundwater remediation costs paid or incurred by the taxpayer with respect to a qualified
site (to the extent that such groundwater remediation costs are not included in the
determination of the site preparation credit or the cost or other basis included in the
determination of the tangible property credit). The credit component so determined for costs
incurred and paid with respect to and prior to the issuance of a remediation certificate shall
be allowed for the taxable year in which the effective date of the issuance of a remediation
certificate occurs. The credit component amount determined in taxable years after the
effective date of the issuance of a remediation certificate shall be allowed in the taxable year
such qualified costs are incurred and paid for up to five taxable years after the issuance of
such remediation certificate.
*

*

*

(6) Site preparation costs and on-site groundwater remediation costs paid or incurred
by the taxpayer with respect to a qualified site and the cost or other basis for federal income
tax purposes of tangible personal property and other tangible property, including buildings
and structural components of buildings, which constitute qualified tangible property shall
only include costs paid or incurred by the taxpayer on or after the date of the brownfield site
agreement executed by the taxpayer and the department of environmental conservation
pursuant to section 27-1422 [sic] [section 27-1409] of the environmental conservation law.
*

*

*

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(b) Definitions. As used in this section, the following terms shall have the following
meanings:
(1) Qualified site. A “qualified site” is a site with respect to which a certification of
completion has been issued to the taxpayer by the commissioner of environmental
conservation pursuant to section 27-1419 of the environmental conservation law.
*

*

*

(5) Remediation certificate. A “remediation certificate” is a certification of
completion issued by the commissioner of environmental conservation pursuant to section
27-1419 of the environmental conservation law.
*

*

*

(c) Qualifying property. Property which qualifies for the credit provided for under
this section and also for a credit provided for ... (2) [under either] subsection (a) or
subsection (j) of section six hundred six of this chapter, or both, ... may be the basis for
either the credit provided for under this section or one of the credits enumerated in paragraph
... two ... of this subdivision, but not both.
*

*

*

(f) Cross-references. For application of the credit provided for in this section, see
the following provisions of this chapter:
*

*

*

(3) Article 22: Section 606, subsections (i) and (dd)....
Section 606(dd) of the Tax Law was relettered (yy) and a new (dd) was added by Chapter 1
of the Laws of 2003, and provides as follows:
Brownfield redevelopment tax credit. (1) Allowance of credit. A taxpayer shall be
allowed a credit, to be computed as provided in section twenty-one of this chapter, against
the tax imposed by this article.
(2) Application of credit. If the amount of the credit allowed under this subsection
for any taxable year shall exceed the taxpayer’s tax for such year, the excess shall be treated
as an overpayment of tax to be credited or refunded in accordance with the provisions of

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section six hundred eighty-six of this article, provided, however, that no interest shall be paid
thereon.
Opinion
Issue 1.
The tangible property credit component of the brownfield redevelopment tax credit under
section 21(a)(3) of the Tax Law provides that such component is based on the cost or other basis
determined for federal income tax purposes of tangible personal property and other tangible
property, including buildings and structural components of buildings, which constitute qualified
tangible property. Tangible personal property and other tangible property, including buildings and
structural components of buildings, will be treated as qualified tangible property if the property
meets the conditions contained in section 21(b)(3) of the Tax Law.
In this case, each East Coast LLC plans to clean up and remediate the Land, and obtain a
Certificate of Completion (Remediation Certificate). Each East Coast LLC also plans to construct
new buildings on the remediated Land. If the new buildings, including structural components of the
buildings, constructed on the remediated Land of each East Coast LLC meet the conditions of
section 21(b)(3) of the Tax Law, then each building will be treated as qualified tangible property
for purposes of computing the tangible property credit component of the brownfield redevelopment
tax credit under section 21 of the Tax Law.
Issue 2.
With respect to LLCs, the classification accorded an LLC for federal income tax purposes
will be followed for purposes of Article 22 of the Tax Law. (See Department of Taxation and
Finance Memorandum, TSB-M-94(6)I and (8)C, October 25, 1994.) An LLC that is treated as a
partnership for federal income tax purposes is treated as a partnership for purposes of Article 22 of
the Tax Law. Where a single member LLC is not classified as an entity separate from its owner for
federal income tax purposes (a disregarded entity), it is considered a branch or division of its owner
for federal income tax purposes, and for purposes of Article 22 of the Tax Law.
A partnership is not a taxable entity for New York State tax purposes, but the partnership’s
activities are reflected in the New York State tax imposed on individual partners pursuant to
Article 22 of the Tax Law.
In John J. Eagan, Norris, McLaughlin & Marcus, Adv Op St Tax Commn, April 29, 1987,
TSB-A-87(9)C, it was held that where a partnership purchases tangible personal property that is
principally used by the partnership and meets all of the requirements for qualifying for the
investment tax credit, a corporate partner of the partnership is allowed an investment tax credit,

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pursuant to section 210.12(a) of the Tax Law, for its allocable share of the cost or other basis of such
qualifying tangible personal property. Likewise, an individual partner of a partnership would be
allowed an investment tax credit pursuant to section 606(a) of the Tax Law for the individual’s
allocable share of the cost or other basis of the qualifying tangible personal property purchased and
principally used by the partnership.
In Bruce Nadell, Adv Op Comm T&F, May 2, 1996, TSB-A-96(12)C, it was held that where
a corporate partner of a partnership is allowed to claim an investment tax credit on qualifying
property that is principally used by the partnership, a corporate member of an LLC that is treated
as a partnership is allowed to claim an investment tax credit on qualifying property that is
principally used by the LLC.
In Sutherland Asbill & Brennan, Adv Op Comm T&F, January 9, 2001, TSB-A-01(1)C, it
was held that where an LLC that is treated as a partnership has been certified pursuant to
Article 18-B of the General Municipal Law, and it purchases tangible property that is principally
used by the LLC and meets all of the requirements under section 210.12-B of the Tax Law for
qualifying for the empire zone investment tax credit, a corporate member of the LLC is allowed an
empire zone investment tax credit pursuant to such section 210.12-B of the Tax Law, for its
allocable share of the cost or other basis of such qualifying tangible property.
Following John Eagan, supra, Bruce Nadell, supra, and Sutherland Asbill, supra, an
individual partner of a partnership would be allowed a brownfield redevelopment tax credit pursuant
to section 606(dd) of the Tax Law for the individual’s allocable share of (a) the site preparation costs
paid or incurred by the partnership with respect to a qualified site, (b) the cost or other basis of the
qualifying tangible property purchased and principally used by the partnership and (c) the on-site
groundwater remediation costs paid or incurred by the partnership with respect to a qualified site
(to the extent that such groundwater remediation costs are not included in the determination of the
site preparation credit component or the cost or other basis included in the determination of the
tangible property credit component), as determined under section 21 of the Tax Law.
In this case, since each Petitioner is a partner of Master, each Petitioner would be allowed
to claim the Brownfield Cleanup Program tax credits under section 606(dd) of the Tax Law for his
allocable share of such tax credits determined pursuant to section 21 of the Tax Law.
Issue 3.
Under section 21(a)(6) of the Tax Law, site preparation costs and on-site groundwater
remediation costs paid or incurred by the taxpayer with respect to a qualified site and the cost or
other basis for federal income tax purposes of tangible personal property and other tangible property,
including buildings and structural components of buildings, which constitute qualified tangible
property shall only include costs paid or incurred by the taxpayer on or after the date of the

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brownfield site agreement executed by the taxpayer and the Department of Environmental
Conservation pursuant to section 27-1422 of the Environmental Conservation Law.
Accordingly, the costs paid or incurred by each East Coast LLC for site preparation and
on-site groundwater remediation with respect to a qualified site after a brownfield site agreement
has been executed, but before the first taxable year beginning after April 1, 2005, may be included
in determining the site preparation and on-site groundwater remediation credit components
contained in section 21 of the Tax Law for the credit that is allowable under section 606(dd) of the
Tax Law.
Further, the cost or other basis for federal income tax purposes of tangible personal property
and other tangible property, including buildings and structural components of buildings, owned by
each East Coast LLC, which constitute qualified tangible property of a qualified site, paid or
incurred after a brownfield site agreement has been executed but before the first taxable year
beginning after April 1, 2005, may be included in determining the tangible property credit
component contained in section 21 of the Tax Law for the credit that is allowable under section
606(dd) of the Tax Law.
This Advisory Opinion does not address whether the brownfield redevelopment tax credit
may be claimed by a taxpayer with respect to a qualified site if the effective date of the Certificate
of Completion, or the date property is placed in service, occurs before the first taxable year
beginning after April 1, 2005.

DATED: April 1, 2004

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.