United States: Amendments To Drycleaner Cleanup Program Provide Tax Breaks And Other Incentives

On July 1, 1998, Senate Bill 244, amending the Florida Drycleaning Contamination Cleanup Act (the "Act") became effective. The Act provides for state-conducted and funded cleanup by encouraging real property owners to undertake voluntary rehabilitation of contaminated sites. The following is a synopsis of the bill.

The 1998 bill amends Florida Statutes ("F.S.") Chapter 376, Pollutant Discharge Prevention and Removal, to include ß376.30781, F.S. This significant provision was added to encourage voluntary cleanup by providing a partial tax credit for the restoration of contaminated property pursuant to ß199.1055, F.S. and ß220.1845, F.S. The tax credits are aimed at facilitating property transactions and encouraging economic growth and development by supplying an incentive to property owners who wish to restore the environmental condition of their own land. Previously, the primary financial incentive available to those who wanted to participate in the state-funded program was to place the facility on a priority waiting list for state-conducted rehabilitation. A voluntary cleanup agreement for eligible sites could be entered into to receive a limited protection from some liability, but state funding was not available. Now, in order to encourage cleanup of drycleaning-solvent contamination at the earliest possible time, credits can be taken against intangible personal property tax or corporate income tax for voluntary cleanup activity. Thirty-five percent of the costs of the voluntary cleanup activity deemed integral to site rehabilitation is accepted as a credit against any tax due for a taxable year for the following sites: 1) a drycleaning-solvent-contaminated site eligible for state-funded site rehabilitation; 2) a drycleaning-solvent-contaminated site where cleanup is undertaken by the real property owner, if the real property owner is not also the owner or operator of the drycleaning facility where the contamination exists; or 3) a brownfield site¹ in a designated brownfield area pursuant to ß376.79 and ß376.80, F.S. If the credit is not fully used because of insufficient tax liability, the amount remaining may be carried over for a five-year period.

Tax credits are capped at $250,000 per site per year, for a taxpayer, or multiple taxpayers working jointly to clean up a single site. The total amount of tax credit granted under this bill in a single year is capped at $2 million and approval is on a first-come, first-served basis. These tax credits may be transferred after a merger or acquisition to the surviving or acquiring entity and used in the same manner with the same limitations. Additionally, as an incentive to complete rehabilitation, the taxpayer may claim an additional ten percent (10%) of the total cleanup cost in the final year of cleanup. The final year of the cleanup is defined as the year in which the State of Florida Department of Environmental Protection ("DEP" or the "Department") issues a "No Further Action" order for that site. This claim may not exceed $50,000.

To claim the tax credit the applicant must have entered into a voluntary cleanup agreement with the DEP and have paid all deductibles. The application deadline for an allocation of the annual credit is on December 31^st of each year.

Additionally, the 1998 bill eliminated a tax credit for small spills. Previously, any costs incurred in response to a spill of more than 1 quart of drycleaning solvent outside of a containment structure could be credited against the future gross receipts tax or against the future tax on production or importation of percholoroethylene.

The 1998 bill shortened the deadline for applying for eligibility in the program from December 31, 2005 to December 31, 1998. If contamination is reported after December 31, 1998, costs associated with site rehabilitation will not be reimbursed from the drycleaning restoration funds. It is uncertain whether this deadline for eligibility will also revoke immunity from certain administrative or judicial actions which the program currently provides. The ramifications of this interpretation would allow third persons or the government to bring an action against the owner or operator of a facility compelling rehabilitation or demanding payment for the costs associated with rehabilitation. This problem may remain unclear until the program is put into effect by the agency or until the ambiguity is addressed through the DEP rule-making process, or by future amendments by the Legislature.

One significant component of the existing Act shielded "eligible" drycleaning facility owners and operators from liability for restoration costs in hopes of encouraging owners and operators to detect and report contaminated sites. The owners and operators are insulated from state or local government or third-party restoration liability for any contamination caused by their drycleaning solvents. The facilities have to satisfy statutory criteria to be eligible to qualify for government-funded restoration. One requirement stated that the drycleaning facility may be ineligible for the program if it was operated in a "grossly negligent manner." This term remained ambiguous until the legislature defined "grossly negligent manner" in the new legislation to include: 1) willful discharge of drycleaning solvents on soils or into waters of the state after the November 19, 1980, with knowledge, intent, and purpose that the discharge would result in harm to the environment or to public health or result in violation of the law; 2) willful concealment of a discharge of drycleaning solvents with the knowledge, intent, and purpose that the concealment would result in harm to the environment or to public health or result in a violation of the law; or 3) willful violation of a local, state or federal law or rule regulating the operation of drycleaning facilities with knowledge, intent, and purpose that the act would result in harm to the environment or to public health or result in a violation of the law.

Funding for the rehabilitation program under the existing Act was provided in part by implementing a two percent (2%) tax on the monthly gross receipts of drycleaning facilities. The 1998 amendment to ß376.70(1), F.S., relating to a tax on gross receipts of drycleaning facilities, now provides that "dry drop-off facilities" are also subject to the two percent gross receipts tax. A "dry drop-off facility" was defined to mean a store that only receives clothing for drycleaning, and does not launder any clothing or fabrics at the store. Owners or operators of dry drop-off facilities now are also required to register the facility with the Department of Revenue and pay the $30 registration fee.

According to the 1998 bill, if the facility operator and the real property owner fail to remit all taxes due pursuant to ß376.70, F.S. and ß376.75, F.S., the department may deny eligibility in the drycleaning solvent cleanup program if the Department of Revenue first: 1) ascertains the amount of the delinquent tax and communicates the amount in writing to the applicant and the real property owner; and, 2) provides a method for the payment of the taxes to the facility owner, the facility operator, and the real property owner. Also, the owner or operator of a drycleaning facility must demonstrate to the Department of Revenue that failure to timely remit taxes due was not willful and overt.

In an attempt to reduce the submissions of multiple and conflicting registration information for each facility, the existing Act established a joint registration procedure. The facility owner, operator and the real property owner could jointly apply to the DEP for participation in the program. The 1998 bill clarified that the owner, operator, and either the real property owner or agent of the real property owner may apply jointly for the drycleaning contamination cleanup program. The applicant must still notify the other interested non-applying parties if all interested parties do not jointly submit the application.

The existing Act provided that eligible facilities do not lose their eligibility if the owner conveys ownership of the drycleaning facility, wholesale supply facility, or real property on which a facility may be located. The eligibility "runs with the land." To compel cleanup, persons who conduct voluntary rehabilitation are afforded immunity from liability under certain conditions. The 1998 bill, in ß376.3078(10), F.S., provided that this immunity also runs with the land. Immunity for persons who conduct voluntary cleanup would continue to apply to the real property, even if the owners transfer, convey, lease, or sell property on which a drycleaning facility is located, so long as the voluntary cleanup activities continue.

The bill also addressed another concern expressed regarding the drycleaning solvent cleanup program. To protect owners or operators, ß376.3079, F.S. established third-party liability insurance coverage. The existing Act required that an owner or operator of an operating drycleaning facility purchase third-party liability insurance for $1 million of coverage, if available at a reasonable rate. The 1998 bill, in ß376.3078(9), F.S., not only stated that such insurance must be purchased by the owner or operator by January 1, 1999, the owner or operator must also purchase third-party liability insurance for $1 million of coverage for each operating facility. This requirement is applicable only if the insurance is available at a reasonable rate and covers liability for contamination before and after the effective date, retroactive to the commencement of operations at the drycleaning facility or wholesale supply facility. The insurance may also be offered in group coverage policies with a minimum coverage of $1 million for each member of the group per year. However, not only is it uncertain whether such insurance is "available" to owners or operators, the 1998 bill left the meaning of "reasonable rate" unclear.

To compel the rehabilitation of sites contaminated by drycleaning solvents, additional immunity provisions were added to shield nearby property owners from certain administrative and judicial actions under ß376.3078(3)(p), F.S. If a person's property becomes contaminated because of the operation of a nearby drycleaning or wholesale supply facility, and the person's property has never been occupied by a business that utilized or stored drycleaning solvents or similar constituents, immunity from certain administrative and judicial actions may be granted if the person: 1) does not own and has never held an ownership interest in, or shared in the profits of, the drycleaning facility operated at the source location; 2) did not participate in the operation or management of the facility at the source location; and, 3) did not cause, contribute to, or exacerbate the release or threat of release of any hazardous substance through any act or omission. This defense does not apply to any liability under a federal program.

Because one goal of the 1998 bill was to protect the health of all people "under actual circumstances of exposure," the bill added and enlarged several specific considerations for rehabilitation of contaminated property, replacing the priority language in ß376.3078(4), F.S. By July 1, 1999, the DEP must establish criteria for determining, on a site-specific basis, the rehabilitation program tasks that comprise a site program. In establishing the rule, the DEP is instructed to incorporate, to the maximum extent feasible, risk-based corrective-action principles to achieve protection of human health and safety and the environment in a cost-effective manner. The criteria must: 1) consider current exposure and potential risk of exposure to humans and the environment, including multiple pathways of exposure; 2) establish the point of compliance at the source of the contamination (the Department may extend the point of compliance beyond the property boundary if it is needed to facilitate natural attenuation or to address the current conditions of the plume); 3) ensure that achievement of the applicable "cleanup target level" is the site-specific cleanup goal for all contaminated sites; 4) allow the use of institutional or engineering controls where appropriate; 5) consider the additive effects of contaminants, including the synergistic and antagonistic effects; 6) take into consideration individual site characteristics, including the use of affected groundwater and surface water in the vicinity of the site and current and projected land uses of the affected area; 7) apply state water quality standards; 8) provide for the department to issue a "No Further Action" order; and, 9) establish appropriate cleanup target levels for soils.

The 1998 bill added a list of contingencies that may require a site to be reopened. Pursuant to ß376.3078(11), F.S., additional site rehabilitation will be required if: 1) fraud was committed in demonstrating site conditions or completion of site rehabilitation; 2) new information confirms the existence of an area of previously unknown contamination which exceeds the site-specific rehabilitation levels established or which poses a threat of real and substantial harm to public health, safety, or the environment; 3) remediation efforts failed to achieve site rehabilitation criteria established in this bill; 4) the level of risk increased beyond what is acceptable due to substantial changes in exposure conditions, such as a change in land use from nonresidential to residential; or, 5) a new discharge occurs subsequent to a determination of eligibility for participation in the program.

The Florida legislature recognized its limitations in addressing cleanup liability under federal pollution control programs in the addition of ß376.3078(12)(c), F.S. Therefore, in an effort to secure federal liability protection for persons who are willing to undertake remediation responsibility at a drycleaning site, the bill required the DEP to attempt to negotiate a memorandum of agreement or similar document with the United States Environmental Protection Agency ("EPA"). In the memorandum of agreement, the EPA may agree to forego enforcement of federal corrective action at sites that have received "Site Rehabilitation Completion," or a "No Further Action" determination from the DEP, or at sites that are in the process of implementing a voluntary cleanup agreement.

Funding for the cleanup program was provided by a deductible fee per contamination incident to be paid to the Hazardous Waste Management Trust Fund. The 1998 bill, in ß376.3078(3), F.S., changed the due dates for the applicant's or current property owner's payment of deductibles. The legislation stated that for contamination reported to the department from July 1, 1997, through September 30, 1998, a $5,000 deductible per incident must be submitted within 60 days after receipt of billing. Shortening the deadline by several years, the 1998 bill provided that for contamination reported between October 1, 1998 and December 31, 1998, the applicant or current property owner must pay a $10,000 deductible per incident within 60 days after receipt of billing. Because costs will not be reimbursed from the restoration funds after December 31, 1998, the provision that once related to the payment of deductibles through December 31, 2005 was removed.

The 1998 bill added Section 6 to ß213.053, F.S. to provide additional funding for the rehabilitation program. The $4 million appropriated from the General Revenue Fund Specific Appropriation 1727 for Brownfield Redevelopment in the Conference Report on HB 4201 was reduced by $1 million, and that $1 million will be used to cover the cost of the tax credit provisions authorized in this bill.

The 1998 bill added a provision relating to late fees for registration renewals in ß376.303(1)(d)(2)(a), F.S. A penalty of $75.00 will be assessed if any facility fails to pay the renewal fee within 30 days after receipt of billing.

Paragraph (o) was added to subsection (7) of ß213.053, F.S. to state that the Department of Revenue can provide information relative to ß376.70, F.S. and ß376.75, F.S. to the DEP in the conduct of its official business, and also to the facility owner, operator and real property owners.

The existing Act provided for funding for the rehabilitation program in part by a $5 per gallon tax on the sale or transfer of perchloroethylene to the drycleaning facility, or import into the state by a drycleaning facility. The 1998 bill stated that this tax was not subject to the sales and use tax levied pursuant to Ch. 212, F.S.

An exemption from the gross receipts tax is granted pursuant to ß376.70(5), F.S., which was added by the 1998 bill, if the gross receipts arise from charges for services that are taxable under this bill and the charges are also imposed on others for those same services.