According to the Massachusetts Supreme Court, the state cannot impose taxes on the capital gain earned from the sale of an urban redevelopment project that meets the criteria for tax exemption under Chapter 121A.
Private entities are incentivized to invest in urban redevelopment projects in areas that have deteriorated, become unsightly, and often pose safety hazards due to a tax exemption provided by the law. This encourages the entities to construct, operate, and maintain the projects.
The tax concession, which can be extended for up to 40 years, provides that private entities are exempt from paying any state tax on such a project.
The case presented whether, when an otherwise qualifying entity sells an urban redevelopment project during the forty-year tax-exempt window, the tax concession extends to the capital gain from the sale.
The court said that to determine whether the exemption applies to the capital gains on the sale of Chapter 121A projects, it had to determine whether imposing a tax on the capital gain is a tax on account of a project, as that phrase is used in the law.
Achieving a capital gain from the sale of a 121A project is often a significant driver for real estate investors; construing on account of to extend to the capital gain from the sale of a project not only falls within the broad language the Legislature chose for the tax concession but is supported by the statute’s main object to spur private investment in blighted areas. The Court ruled.