Tennessee (Again) Expands Brownfield Redevelopment Incentives

For the third time in four years, Tennessee has expanded brownfield redevelopment incentives. On March 31, 2023, Gov. Bill Lee signed into law SB0271, legislation amending brownfield redevelopment laws related to franchise and excise (F&E) tax credits and tax increment financing (TIF). The bill also establishes Tennessee’s first Brownfield Redevelopment Area Fund and authorizes the Tennessee Department of Environment and Conservation (TDEC) to administer a Brownfield Redevelopment Area Grant Program. Effective July 1, 2023, the law creates significant new opportunities to incentivize brownfield redevelopment in Tennessee.  (Previous changes to Tennessee brownfield incentive laws are discussed in previous client alerts here and here.)

Franchise and Excise Tax Credit

Under T.C.A. § 67-4-2009, brownfield properties are eligible for a credit against the sum of taxes imposed by the Franchise Tax Law of 1999. Tax credits apply against an entity’s combined franchise and excise tax liability. The franchise tax is based on the greater of net worth or the book value of real or tangible personal property owned or used in Tennessee. The excise tax is based on net earnings or income for the tax.

The potential F&E credit depends on whether a brownfield property is located in a Tier 3 or Tier 4 county, or a Tier 1 or Tier 2 county.

Tier 3 & 4 Counties

Incentives and key requirements under existing law include:

• Credits may equal 75% of the purchase price of a brownfield property.
• Credits may not exceed 75% of an entity’s combined F&E tax liability.
• The minimum capital investment is $5 million.
• The investment period is a maximum of five years.
• Credits may be carried forward for up to 15 years.

SB0271 creates an option for developers to base the amount of tax credit on the cost of remediation instead of the purchase price of the brownfield property. Developers may prefer this option because the purchase price for brownfield properties in Tier 3 and 4 communities can be relatively inexpensive. In many cases, 75% of the purchase price of these properties would be insufficient to cover remediation costs. Under the new law, projects in Tier 3 and Tier 4 counties can qualify for a tax credit equal to the remediation costs for a brownfield property, up to $500,000. 

Tier 1 & 2 Counties

Incentives and key requirements under existing law include:

• Credits may equal 50% of the purchase price of a brownfield property.
• Credits may not exceed 50% of an entity’s combined F&E tax liability.
• The minimum capital investment is $25 million.
• The investment period is a maximum of five years.
• Credits may be carried forward for up to 15 years.

These elements remain unchanged under SB0271. 

Finally, existing law applicable in Tier 1, 2, 3, and 4 counties limits the definition of “brownfield site” to parcels that have been the subject of an “investigation or remediation.” SB0271 expands this definition of “brownfield site” to include property that has been the subject of “mitigation” as a brownfield project. This allows brownfield sites where the risk of a hazardous substance, pollutant, or contaminant has been sufficiently mitigated, but not fully remediated, to qualify for the F&E tax credit.

Tax Increment Financing

Tax increment financing, or TIF, allocates increases in tax revenues to finance or reimburse costs associated with development projects. For example, incremental increases in property or sales tax could be tapped to construct public infrastructure (e.g., roads) to satisfy a community need. Tennessee law provides for different types of TIFs, including those authorized by local industrial development boards and approved by local governments (known as “IDB TIFs”). One such TIF provision, codified at T.C.A. § 7-53-316 (the “Brownfield TIF Law”), authorizes the use of TIF to fund brownfield remediation and redevelopment. 

SB0271 makes several important changes to the Brownfield TIF Law. Under existing law, a brownfield site must be located in an urban or economically disadvantaged area (e.g., in an Opportunity Zone) to qualify. SB0271 removes this restriction so that all brownfield sites are eligible, regardless of location. Additionally, SB0271 broadens the definition of “qualified costs” (i.e., costs eligible for TIF funding) to include costs of acquisition and costs of improvements to the project site. Finally, like in the F&E context (discussed above), SB0271 expands the definition of “brownfield property” to include properties that have been the subject of mitigation as a brownfield project, in addition to properties that have been the subject of investigation or remediation.

Grant Program

SB0271 also establishes a Brownfield Redevelopment Area Fund to be administered by TDEC. TDEC will use the fund to award grants to eligible entities for the remediation costs and reasonable administrative expenses related to brownfield redevelopment. An entity’s administrative expenses cannot exceed 5% of the grant award and no eligible entity shall receive more than $500,000 from the fund in a fiscal year. The guidelines for the grant program will be published on TDEC’s website.

Prior to SB0271, developers could receive grant funding through the U.S. EPA for brownfield assessment and clean up. Tennessee’s new brownfield redevelopment grant program provides an exciting new opportunity for developers to receive direct funding from the state for the remediation of a brownfield site.  

Conclusion

With the enactment of SB0271, the Tennessee “incentive tool kit” has been expanded to include new opportunities for brownfield redevelopment, potentially offsetting costs incurred in connection with environmental investigation, remediation, and mitigation. Developers, local community leaders, and economic development professionals evaluating the redevelopment of contaminated sites should evaluate opportunities under the amended TIF law, F&E tax credit law, and new grant program.