The Ohio House has introduced a bill that would provide a tax incentive to clean up contaminated properties. House Bill 10, if enacted, would provide an exemption from penalties as well as a tax credit to encourage companies to voluntarily remediate property.
Similar to other existing tax incentives, the bill encourages companies to remediate property under Ohio’s Voluntary Action Program (VAP). As discussed in my previous post, the VAP offers a much better option for addressing historical contamination on-site than traditional environmental clean up programs such as CERCLA.
One Year Exemption from Penalties
The bill as introduced, would provide any person or company to which a covenant not to sue (CNS) under the VAP was issued, a one year exemption from any fees or civil or administrative penalties that would be imposed under any environmental law.
The bill is vague as to how the exemption would operate in practice. For example, does it exempt penalties associated with violations that occur in that one year period? Or does it exempt the company from any and all violations, including historical violations, if an action is brought during the year following the CNS?
The other component that will likely be tweaked once the bill goes through hearings is the broad nature of the exemption. It would exempt a company from all penalties, even those totally unrelated to the clean up of the property.
Tax Exemption for Site Remediation Costs
The exemption would cover remediation costs to clean up vacant land as well as property returned to commercial or industrial use. The tax credit essentially doubles if the property is used for "productive use" which is defined as any trade or business.
The tax credit applies to the commercial activity tax or the applicable income tax. The credit would not apply (expire) to any remediation expenditures paid or incurred for a VAP clean up initiated after December 31, 2017. A VAP is deemed "initiated" if a Phase I is performed.
Any tax exemption is going to be monumentally difficult to pass when the State of Ohio faces a $8 billion dollar budget deficit. So, the prospects of this bill may not be bright.
The bill’s goal of spurring voluntary clean ups at industrial properties is admirable. After the recent financial crisis, Ohio and the entire Midwest saw exponential growth in abandoned properties with contamination. Creating incentives to address these properties is good for the State.
However, rather than a tax credit for remediation costs it may be a more prudent approach to look at expanding the tax exemption for new development on brownfields. (See prior post discussing issues with current brownfield exemption). The tax impact on revenues would be less dramatic and even could be neutral.
Regardless, it is good to see Legislative policy debate regarding more incentives for voluntary remediations and brownfield redevelopment. After the financial crisis, Ohio needs to get much more proactive to address its ever expanding portfolio of brownfield properties.