OLR Bill Analysis

SB 623

AN ACT ESTABLISHING THE 7/7 PROGRAM TO ENCOURAGE THE REDEVELOPMENT OF BROWNFIELDS AND UNDERUTILIZED PROPERTY.

SUMMARY

This bill provides a package of tax incentives to property owners after they remediate, redevelop, and use property that was contaminated, abandoned, or underutilized. Owners must apply to the Department of Economic and Community Development (DECD) for these incentives and provide certain information, including a plan and a commitment to train and hire students to work at the redeveloped property.

During the first seven years after an owner redevelops a DECD-approved property, the owner qualifies for (1) corporation business or personal income tax credits against the income attributed to the redeveloped property and (2) sales and use tax exemptions applicable to items purchased for use at the property. During this period, the owner also qualifies to have the redeveloped property's tax assessment frozen for five years at its predevelopment value.

If the property was contaminated and remediated, the owner qualifies for an additional seven-year benefit beginning in the eighth year after the property's redevelopment. The benefit is a business or personal income tax deduction for up to 8.57% of the eligible expenses the owner incurred to remediate the property.

EFFECTIVE DATE: July 1, 2017 and applicable to taxable year and income years beginning on or after January 1, 2017.

ELIGIBILITY

The bill establishes the “7/7 program” and opens it to any person, firm, limited liability company, nonprofit or for-profit corporation or other business entity that owns (1) an abandoned or underutilized property (i.e., problem property) or (2) one where actual or potential pollution has discouraged the owner or other parties from redeveloping, reusing, or expanding the property (i.e., brownfield).

An abandoned or underutilized property qualifies for 7/7 program benefits if its host municipality certifies that the property has been in that condition for at least 10 years. A brownfield qualifies if its current owner (1) is not responsible for any pollution or source of pollution on the property and (2) did not establish, create, or maintain a source that polluted the state's water.

DECD APPLICATION

Contents

Eligible property owners seeking 7/7 program tax incentives must submit an application to DECD, providing:

1. a description of the property and its proposed reuse,

2. a written certification that the property is a brownfield or has been abandoned or underutilized for at least 10 years,

3. a plan to train and a commitment to hire local students to work at the redeveloped property (see below),

4. a written certification from the property's host municipality stating that it supports the property's approval for 7/7 program incentives, and

5. any other information the commissioner requests.

If the property is a brownfield, a licensed environmental professional must certify that actual or potential pollution has discouraged parties from redeveloping, reusing, or expanding it. If the property is unpolluted but has been abandoned or underutilized, the host municipality must certify that it has been in that condition for at least 10 years.

The commissioner must approve an owner's application if it includes all of the required information and notify the Department of Revenue Services (DRS) commissioner whenever she does so.

Worker Training and Hiring Requirements

Property owners applying for 7/7 program incentives must include in their applications a training plan and a commitment to hire students trained under that plan. An owner must submit the plan to the area's high schools and regional technical community colleges identifying the types of jobs that will be performed at the redeveloped property and specifying the types of training programs needed to prepare students for those jobs. The owner must also commit to hiring at least 30% of the workers at the property from among the enrollees of the programs developed to train workers for jobs at the redeveloped property.

7/7 PROGRAM INCENTIVES

Timing

The owners of brownfields approved for 7/7 incentives qualify for them only after they remediate the brownfield, file the necessary documents verifying remediation, and notify the host municipality and the DRS and DECD commissioners to that effect. Neither owners of a remediated brownfield or a redeveloped problem property approved for 7/7 incentives can claim their incentives until they begin business operations on the property.

Brownfield and problem property owners qualify for the same types of benefits during the first seven years after they begin operations on property approved for 7/7 program incentives (i.e., Stage 1 incentives). Brownfield owners qualify for an additional incentive during the subsequent seven years (i.e., Stage 2 incentives).

Table 1 summarizes the bill's schedule of 7/7 Program incentives.

Table 1: 7/7 Program Incentive Schedule

Stage

Eligible Property

Time Period

Incentives

1

Remediated and redeveloped former brownfields

Redeveloped and reused previously abandoned and underutilized property

First seven years after business operations begin at redeveloped property

Seven-year, 100% personal or corporation business tax credit against income attributable to redeveloped property

Seven-year sales and use tax exemption for items purchased for use at redeveloped property

Five-year property tax assessment freeze

2

Remediated and redeveloped former brownfields

Years eight to 14 after business operations begin at redeveloped property

Seven-year maximum 8.57% deduction against personal income or corporation business taxes for eligible remediation expenses

Stage 1 Incentives

Business and Personal Income Tax Credits. Brownfield and problem property owners may claim a 100% credit for seven years against the personal or corporation business taxes attributable to business operations at the property during the taxable year, but only after deducting any other available credits.

The credit against the personal income tax is available to owners organized as S corporations, limited liability partnerships, or limited liability companies. These business entities do not pay corporation business taxes, but the owners and partners pay personal income taxes on the income they derive from the entity. (These entities are commonly referred to as “pass-through entities,” meaning that the income flows from the business to the owner where it is taxed as personal income.) Consequently, the bill allows these owners and partners to claim a credit equal to their share of the taxes attributable to the property's operation during the taxable year.

Sales and Use Tax Exemptions. Brownfield and problem property owners qualify for sales and use tax exemptions for any item they purchase and use at the redeveloped property during the ordinary course of business. Like the personal and corporation business tax credit, the sales tax exemption is available for seven years beginning with the year business operations start at the property.

Owners may claim this exemption by presenting a certificate indicating that the purchased item is exempt from the sales tax. The certificate must be substantially in a form the DRS commissioner prescribes and bear the purchaser's name, address, and signature. If the purchaser does not use the item in the ordinary course of business at the property, the purchaser must pay the sales and use tax.

Property Tax Assessment Freeze. Property owners also receive a property tax incentive. Under the bill, municipalities must freeze, for five years, the assessed value of a 7/7 program-approved property as of the date the DECD commissioner approved it for the program's incentives. The freeze begins on the October 1 assessment date following the date when the municipality issued a building permit to begin construction on the property.

Stage 2 Incentives for Remediated Brownfields

Brownfield owners receive an additional incentive, which is available for seven years, beginning in the eight years after business operations began at a remediated 7/7 program property. The incentive is a deduction against the personal income or corporation business tax for up to 8.57% of the eligible expenses the owner incurred to remediate the property.

Eligible expenditures are those the owner incurred to investigate and assess the nature and extent of the contamination and eliminate or mitigate it. These expenditures include:

1. investigating soil, groundwater, and infrastructure;

2. assessing the property's condition;

3. remediating the soil, sediment, groundwater, and surface water;

4. abating contamination;

5. removing and disposing of hazardous materials and waste;

6. implementing long-term groundwater or natural attenuation monitoring;

7. implementing institutional controls, such as environmental land use restrictions and activity and use limitations;

8. paying reasonable attorneys' fees;

9. retaining planners, engineers, and environmental consultants; and

10. remediating building and structural issues, including demolishing structures and abating or removing various hazardous substances, including asbestos.

Any expenditure funded under a DECD brownfield cleanup program does not quality as an eligible expenditure.

COMMITTEE ACTION

Commerce Committee

Joint Favorable Change of Reference - FIN

Yea

21

Nay

0

(03/21/2017)

Finance, Revenue and Bonding Committee

Joint Favorable

Yea

51

Nay

0

(04/27/2017)