Michigan ramped up its efforts to encourage the redevelopment or reuse of contaminated “brownfield” land when it enacted the Transformational Brownfield Plan (TBP) in July 2017.
 
Effective through December 31, 2022, TBP allows for the “capture” — or reimbursement — of certain tax revenues generated by approved projects in the state. This incentive, combined with the traditional Brownfield program’s sales and use tax exemption and property tax capture, could mean significant tax savings for developers with qualifying projects. 

How It Works

TBP allows a developer to: 

• Benefit from sales and use tax exemptions during construction — the purchase of certain tangible personal property is generally exempt from sales and use tax collections if the property will be affixed or made a structural part of the plan,
• Capture income taxes during construction, and
• Capture income and withholding taxes of new tenants and employees living and working inside the buildings post-construction. 

There is an $800 million cap for income and withholding tax captures and a $200 million cap for the construction period. There is a lifetime cap of $1 billion across all approved plans.
 
TBP includes three types of income tax revenues: 

• Income tax funds capture from the calendar-year wages paid to individuals physically present and working within the eligible property for the construction, renovation or other improvement of the eligible property.
• Income tax funds capture of the aggregate income tax of individuals living within the eligible property that exceeds the initial income tax value.
• Income withholding tax capture of amounts withheld from individuals employed within the eligible property that exceeds the initial withholding tax value. 

How to Qualify

Projects are required to have an expected capital investment starting at $15 million for a project in communities with under 25,000 residents up to $500 million for cities with a population over 600,000.
 
A potential project must be a mixed-use development, integrating retail, office, residential or hotel uses. Further, TBP allows for only five approved projects in a calendar year, and no more than five total projects in any municipality through 2022.
 
The TBP plan document also must include: 

• The basis for the TBP designation;
• Full description of the TBP costs that will be paid within the construction period, including withholding tax and income tax capture revenues;
• Revenue estimates from the construction period, withholding tax and income tax generated each year;
• Beginning date and duration of the tax capture periods;
• Description of how the revenues will be used; and
• A fully approved work and written development plan approved by the Brownfield Redevelopment Authority and the Michigan Strategic Fund. 

TBP is an attractive incentive for large-scale economic growth within Detroit and other areas in the state. However, TBP’s detailed approval process, anticipated demand and limit on the number of approved plans also means that now is the time to act if you are considering redeveloping a brownfield site and hope to maximize your development budget.

Sidebar:  What Other Economic Incentives Are Available For Developers in Michigan?

The Michigan Economic Development Corporation currently offers Brownfield Tax Increment Financing, Community Development Block Grants, Michigan Community Revitalization, Michigan Main Street, Public Spaces Community Places, Redevelopment Ready Communities and Smart Zones as options. While the incentive programs you qualify for will depend on your project, most must be in place before the project begins. Consult with your advisory team early to help select and obtain critical components of your capital stack, and to structure the deal in the most tax-efficient way.
 
Please contact a member of your service team, or contact Jeff McMichael at jmcmichael@cohencpa.com or Adam Hill at ahill@cohencpa.com for further discussion. 
 
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.