Dear Mr. Hammond:

On behalf of the Virginia Manufacturers Association (“VMA”), we are writing in response to DEQ’s proposed revisions to its Guidance Memo No. 92-006 through its proposed Addendum No. 7.   VMA represents a broad range of industries in Virginia, many of which operate pollution control equipment and take advantage of the pollution control equipment and facilities tax exemption.  The General Assembly enacted Va. Code § 58.1-3660 to provide an important incentive, encouraging industrial facilities to invest in pollution control equipment.  VMA understands that DEQ’s intention in making the proposed revisions is to promote consistency across all media programs in implementing the tax exemption.  However, some of the proposed revisions in the addendum go beyond promoting consistency between programs to narrowing the scope of the exemption.  The changes proposed by DEQ limit the eligibility of important components of pollution control equipment and are inconsistent with the intent of the statute.   

As reflected in the Joint Legislative Audit and Review Commission’s (“JLARC”) report “Date Center and Manufacturing Incentives Economic Development Incentives Evaluation Series” (June 17, 2019), the pollution control equipment and facilities tax exemption has saved Virginia businesses nearly $27 million in tax savings between FY10 and FY 17.  The JLARC report also explained that even more exemptions could be claimed if the administrative burden of achieving certification were reduced.  The report focused particularly on DEQ.   Rather than improving the process, as recommended by JLARC, the proposed revisions further hamper it.  For example, the proposed addendum to the guidance requires an itemized listing of the equipment and materials used for which the exemption is sought.  This exacerbates the already lengthy and burdensome application process.  DEQ should remove this requirement from any final addendum to the guidance. 

In addition to increasing the burden of the application process, the proposed addendum eliminates the eligibility of chemicals used in pollution control facilities for the tax exemption. VMA requests that DEQ remove this proposed revision from any final addendum, or at a minimum clarify the revision.  Many wastewater treatment facilities require the use of chemicals solely for the purpose of removing or reducing pollutants from their effluents.  In these instances, the chemical is integral to the functioning of the pollution control equipment and should be eligible for the tax exemption.  At a minimum, DEQ should clarify that chemicals used for the primary purpose of abating or preventing pollution of state waters are eligible for the tax exemption, consistent with the text of § 3660.      

The proposed addendum would also prohibit the tax exemption from applying to access structures such as “sidewalks, pavement, etc.”  The construction of pollution control equipment facilities often requires the use of pavement and other structural materials as the foundation for such equipment and such materials are often mandated as part of the regulated pollution control equipment.  In addition to foundations, these structures allow for the safe access for personnel to operate and maintain this pollution control equipment.  Making such materials ineligible writ large is not appropriate.  DEQ should remove this language from any final guidance addendum and instead consider the eligibility of such materials on a case-by-case basis.

Finally, while DEQ is considering amendments to the guidance, DEQ should also clarify its interpretation of section (I) regarding “Retroactive Certification.”  DEQ has previously interpreted this section to mean that a certification cannot be given until an entire project is complete.  This is problematic for large projects which often take years to construct.  As a result, companies are forced to seek the certification and receive the tax credit years after construction on the project commenced.  Va. Code § 58.1-3660(B) defines “certified pollution control equipment and facilities” as any property, “constructed, reconstructed, erected, or acquired . . .” By interpreting section (I) of the guidance as requiring completion of all construction for a project, DEQ is reading the “acquired” provision out of the statute.  In many instances, pollution control equipment is acquired well in advance of a facility being completed.  As such, the equipment should be eligible for tax exemption immediately upon acquisition.  This will also aid facilities in being able to provide documentation of the purchase of the materials, rather than having to save the documentation for years before being eligible to submit it.  DEQ should include a clarification of section (I) to address this point in any final guidance.

Thank you for the opportunity to provide comments on the proposed guidance addendum.  Please feel free to contact us with any questions.

Sincerely,

Brooks M. Smith

Andrea W. Wortzel

Patrick J. Fanning

Counsel to VMA Water Subcommittee

cc: VMA Water Subcommittee Members