Will adding another party - Queens West Development Corporation (QWDC) - to a brownfield cleanup agreement and Certificate of Completion jeopardize the brownfield tax credits otherwise allowable to the original petitioners under Tax Law sections 21, 22, and 23?

Plain-English summary

Three individuals (the Elghanayan brothers), Master HTF, LLC, and seven affiliated "East Coast" LLCs asked the Department whether they could add another party - Queens West Development Corporation (QWDC), a public-benefit subsidiary of the Empire State Development Corporation - to their brownfield cleanup agreements and Certificates of Completion (COC) without losing their own brownfield tax credits. The Petitioner Group leased contaminated former industrial land (a "brownfield") from QWDC under a 99-year land lease and planned to enter cleanup agreements with the Department of Environmental Conservation (DEC) to remediate the sites and build new buildings on them.

QWDC's role was limited: it was building parkland, roads, and infrastructure like sewers on parts of the sites, but the Petitioner Group was solely responsible for designing, financing, and constructing the buildings, and was paying almost all of the cleanup and construction costs before any COC issued. QWDC wanted to be added to the cleanup agreements and COCs mainly to get the liability waivers available to COC participants - not to claim any brownfield tax credits itself. Petitioners made clear they would claim credits only for costs their own group paid or incurred for the work its members performed.

The Department walked through the three brownfield credit provisions in the Tax Law: § 21's brownfield redevelopment credit (site preparation, tangible property, and on-site groundwater remediation components), § 22's real property tax credit for developers of qualified sites, and § 23's environmental remediation insurance credit. Each of these credits is tied to costs, taxes, or premiums "paid or incurred by the taxpayer" claiming the credit - not to who else is named on the agreement or COC.

Because the credits are keyed to what each taxpayer actually spends, the Department concluded that adding QWDC as a party - even accounting for the possibility that QWDC might later transfer its interest and a future owner might try to claim credits for non-Petitioner expenditures - would not jeopardize the brownfield credits otherwise allowable to Petitioners for the costs Petitioners themselves paid or incurred.

What this means for you

Developers sharing a brownfield site with another participant

If you're remediating and redeveloping a brownfield site alongside another party (such as a public authority, landowner, or co-venturer) who is added to your DEC cleanup agreement or Certificate of Completion mainly to obtain liability protection, that addition does not by itself threaten your brownfield tax credits under Tax Law §§ 21, 22, and 23. The credits track your own costs paid or incurred - not the full roster of parties on the agreement or COC.

Structuring who claims what

Keep clear records distinguishing costs paid or incurred by your group from costs paid by any other party added to the agreement or COC. This ruling turned on the fact that Petitioners would claim credits only for costs their own group incurred for work its own members performed, while the added party (QWDC) explicitly disclaimed any intent to claim brownfield credits itself.

Common questions

Q: Does adding a new party to a brownfield cleanup agreement or Certificate of Completion automatically disqualify the original developer from brownfield credits?
A: No. Based on this ruling, simply adding another party - here, to obtain liability waivers - does not jeopardize the original developer's own brownfield credits under Tax Law §§ 21, 22, and 23, as long as that developer continues to claim credits only for its own costs paid or incurred.

Q: What if the added party later sells its interest and the buyer tries to claim brownfield credits?
A: The Department addressed this possibility directly: even accounting for a future transfer or sale of QWDC's interest and a subsequent attempt by a transferee/purchaser to claim credits for non-Petitioner expenditures, that would not jeopardize the brownfield credits otherwise allowable to Petitioners for costs Petitioners paid or incurred.

Q: What credits were at stake in this ruling?
A: The three brownfield-related credits in the Tax Law: the § 21 brownfield redevelopment tax credit (site preparation, tangible property, and on-site groundwater remediation components), the § 22 credit for real property taxes on a qualified site, and the § 23 environmental remediation insurance credit.

Q: Why did QWDC want to be added to the agreements and Certificates of Completion?
A: To obtain the benefits of the liability waivers available to participants in a brownfield cleanup agreement who obtain a Certificate of Completion - not to claim any brownfield tax credits itself.

Citations and references

• Tax Law § 21 - brownfield redevelopment tax credit (site preparation, tangible property, and on-site groundwater remediation components)
• Tax Law § 22 - tax credit for remediated brownfields, including the real property tax credit for developers of a qualified site
• Tax Law § 23 - environmental remediation insurance credit
• Tax Law § 606(dd), (ee), (ff) - application of the §§ 21, 22, and 23 credits against the Article 22 personal income tax, including carryover/refund treatment
• Environmental Conservation Law § 27-1419 - issuance of a certificate of completion by the Commissioner of Environmental Conservation
• Environmental Conservation Law § 27-1409 - brownfield site cleanup agreement with the Department of Environmental Conservation

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a07_2i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(2)I
Income Tax
April 12, 2007

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I061220B

On December 20, 2006, a Petition for Advisory Opinion was received from H. Henry
Elghanayan; Kamran T. Elghanayan; Frederick Elghanayan; Master HTF, LLC; East Coast 1,
LLC; East Coast 2, LLC; East Coast 3, LLC; East Coast 4, LLC; East Coast 5, LLC; East Coast
6, LLC; East Coast 7, LLC (collectively, Petitioners); c/o Jack Mandel, Peter Guy, and Bartley
Fisher, c/o Bryan Cave, LLP, 1290 Avenue of the Americas, New York, New York 10104.
The issue raised by Petitioners is whether adding another party to one or more of their
brownfield cleanup agreements (Agreements) and to the Certificates of Completion (COC) with
respect to certain brownfield sites will jeopardize any brownfield tax credits otherwise allowable
to Petitioners under sections 21, 22, and 23 of the Tax Law.
Petitioners submitted the following facts as the basis for this Advisory Opinion.
Master HTF, LLC (Master) is an entity that is treated as a partnership for federal and
New York State income tax purposes. Its three principal owners are H. Henry Elghanayan,
Kamran T. Elghanayan, and Frederick Elghanayan. Master, indirectly through one or more
entities that are partnerships or disregarded entities for federal and New York income tax
purposes, owns 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
of the East Coast LLCs is a lessee of land located in the City of New York (the Property)
pursuant to a 99-year land lease from Queens West Development Corporation (QWDC), a
corporation organized under the laws of the state of New York and a subsidiary of the New York
State Urban Development Corporation d/b/a the Empire State Development Corporation, a
public benefit corporation under the laws of the state of New York.
The Property encompasses former industrial sites that are contaminated with certain
hazardous substances, sites commonly known as “brownfields.” One or more of the East Coast
LLCs (or affiliates thereof) (collectively, the Petitioner Group) have made applications to enter
the Brownfield Cleanup Program associated with the brownfield credits. The Petitioner Group
currently plans to enter into Agreements with the Department of Environmental Conservation
(DEC) to clean up and remediate the sites and construct new buildings on the sites. Except for
QWDC’s limited involvement, the Petitioner Group is solely responsible for the design,
construction, and financing of the buildings to be constructed on the sites.
Under an agreement with the Petitioner Group, QWDC is constructing parkland in certain
areas of one or more of the sites and is also constructing roads and certain infrastructure
improvements, such as sewers, on one or more of the sites. Except for certain costs related to the
parkland, roads, or other infrastructure improvements, the Petitioner Group is expending almost

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all of the clean-up costs and construction funds associated with the Agreements prior to the
issuance of one or more COCs. The Petitioner Group is the sole developer of all buildings
located on each of the sites, with QWDC having no material role in the construction of the
buildings on the sites.
QWDC seeks to be added to the Agreements between the Petitioner Group and DEC and
to be included on the COC to be issued to the Petitioner Group for each of the sites. Among
other things, this will permit QWDC to obtain the benefits of liability waivers available to
participants in the Agreements who obtain a COC. Petitioners will claim brownfield tax credits
only for costs paid or incurred by a member of the Petitioner Group with respect to the
construction work such member performs on the sites.
QWDC will not seek to claim any brownfield tax credits. Although no transfers or sales
of QWDC’s membership interest are currently contemplated, it is possible QWDC could transfer
or sell some or all of its interest in the Property in the future, and the transferee or purchaser may
assume all or part of the obligation for non-Petitioner expenditures. It is possible that a future
transferee or purchaser of QWDC’s interest may seek to claim certain tax credits under the
brownfield credit provisions with respect to non-Petitioner expenditures.
Applicable law and regulations
Section 21(a) of the Tax Law provides for the brownfield redevelopment tax credit and
provides, in part:
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 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.

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(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 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 certificate of completion has been issued to the taxpayer for up to ten
taxable years after the date of the issuance of such certificate of completion. 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 certificate of
completion shall be allowed for the taxable year in which the effective date of the
issuance of a certificate of completion occurs. The credit component amount determined
in taxable years after the effective date of the issuance of a certificate of completion 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 certificate of completion.
Section 22 of the Tax Law provides, in part:
Tax credit for remediated brownfields. (a) Definitions. As used in this section the
following terms shall have the following meanings:
(1) Certificate of completion. A "certificate of completion" issued by the
commissioner of environmental conservation pursuant to section 27-1419 of the
environmental conservation law.

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(2) Qualified site. For purposes of this section, a "qualified site" is a site with
respect to which a certificate of completion has been issued by the commissioner of
environmental conservation pursuant to section 27-1419 of the environmental
conservation law.
(3) Developer. (i) A "developer" is a taxpayer under article nine, nine-A, twenty­
two, thirty-two or thirty-three of this chapter who or which either (I) has been issued a
certificate of completion with respect to a qualified site or (II) has purchased or in any
other way has been conveyed all or any portion of a qualified site from a taxpayer or any
other party who or which has been issued a certificate of completion with respect to such
site provided, such purchase or conveyance occurs within seven years of the effective
date of the certificate of completion issued with respect to such qualified site. Provided
further, that the taxpayer who or which is purchasing all or any portion of a qualified site
and the taxpayer or any other party who or which has been issued a certificate of
completion with respect to such site may not be related persons, as such term is defined
in subparagraph (C) of paragraph three of subsection (b) of section four hundred sixty­
five of the internal revenue code.
(ii) Where the entity to whom a certificate of completion has been issued is a
partnership, or where the entity which has purchased all or any portion of a qualified site
from a taxpayer who or which has been issued a certificate of completion with respect to
such site within the applicable time limit is a partnership, any partner in such partnership
who or which is taxable under article nine, nine-A, twenty-two, thirty-two or thirty-three
of this chapter shall be a developer under this paragraph. Where the entity to whom a
certificate of completion has been issued is a New York S corporation, or where the
entity which has purchased all or any portion of a qualified site from a taxpayer who or
which has been issued a certificate of completion with respect to such site within the
applicable time limit is a New York S corporation, any shareholder in such New York S
corporation shall be a developer under this paragraph.
*

*

*

(b) Remediated brownfield credit for real property taxes for qualified sites.
(1) Allowance of credit. A developer of a qualified site who or which is 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 paragraph
nine of this subdivision, for eligible real property taxes imposed on such site.
(2) Amount of credit. The amount of the credit shall be twenty-five percent of the
product of (i) the benefit period factor, (ii) the employment number factor, and (iii) the
eligible real property taxes paid or incurred by the developer of the qualified site during
the taxable year (or the pro rata share of such taxes in the case of a partner in a

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partnership or a shareholder in a New York S corporation), except that if the real property
which is the subject of the credit provided for under this section is attributed to a
qualified site located in an environmental zone as defined in paragraph five of
subdivision (a) of this section, the amount of the credit shall be the product of the factors
and taxes referred to in subparagraphs (i), (ii) and (iii) of this paragraph. However, the
amount of the credit may not exceed the credit limitation set forth in paragraph seven of
this subdivision.
Section 23 (a) of the Tax Law provides for the environmental remediation
insurance credit and provides, in part:
Allowance of credit. 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 (e) of this section. The amount
of such credit shall be equal to the lesser of thirty thousand dollars or fifty percent of the
premiums paid on or after the date of the brownfield site cleanup agreement executed by
the taxpayer and the department of environmental conservation pursuant to section 27­
1409 of the environmental conservation law by the taxpayer for environmental
remediation insurance issued with respect to a qualified site.
Section 606(dd) of the Tax Law provides:
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 section six hundred eighty-six of this article, provided, however, that no
interest shall be paid thereon.
Section 606(ee) of the Tax Law provides:
Remediated brownfield credit for real property taxes for qualified sites. (1)
Allowance of credit. A taxpayer which is a developer of a qualified site shall be allowed
a credit for eligible real property taxes, to be computed as provided in subdivision (b) of
section twenty-two of this chapter, against the tax imposed by this article. For purposes of
this subsection, the terms "qualified site" and "developer" shall have the same meaning as
set forth in paragraphs two and three, respectively, of subdivision (a) of section twenty­
two of this chapter.

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(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 section six hundred eighty-six of this article, provided, however, that no
interest shall be paid thereon.
Section 606(ff) of the Tax Law provides:
Environmental remediation insurance credit. (1) Allowance of credit. A taxpayer
shall be allowed a credit, to be computed as provided in section twenty-three 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 section six hundred eighty-six of this article, provided, however, that no
interest shall be paid thereon.
Opinion
Section 21 of the Tax Law provides a brownfield redevelopment tax credit that is equal to
the sum of a site preparation credit component, a tangible property credit component, and an on­
site groundwater remediation credit component. The site preparation credit component is equal
to the applicable percentage of the site preparation costs paid or incurred by the taxpayer with
respect to a qualified site. The tangible property credit component is 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,
that constitute qualified tangible property. The on-site groundwater remediation credit
component is 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).
Section 22 of the Tax Law provides a credit for real property taxes for qualified sites.
The amount of the credit is 25% of the product of (i) the benefit period factor, (ii) the
employment number factor, and (iii) the eligible real property taxes paid or incurred by the
developer of the qualified site during the taxable year.
Section 23 of the Tax Law provides for a credit equal to the lesser of $30,000 or 50% of
the premiums paid on or after the date of the brownfield site cleanup agreement executed by the
taxpayer and the DEC pursuant to section 27-1409 of the Environmental Conservation Law by
the taxpayer for environmental remediation insurance issued with respect to a qualified site.

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The brownfield credits under sections 21, 22, and 23 of the Tax Law relate to the
Petitioner Group’s costs paid or incurred for site preparation, qualified tangible property,
groundwater remediation, real property taxes, and insurance premiums. Adding QWDC to one or
more of the Agreements and to the COC with respect to certain brownfield sites (including the
possibility that QWDC may transfer or sell some or all of its interest in the Property and the
transferee or purchaser may seek to claim brownfield credits with respect to non-Petitioner
expenditures) will not jeopardize any brownfield tax credits otherwise allowable to Petitioners
for such costs paid or incurred by Petitioners.

DATED: April 12, 2007

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.