On August 9, 2022, President Biden signed the Creating Helpful Incentives to Produce Semiconductors Act (CHIPS and Science Act of 2022) into law. It provides more than $52 billion for American semiconductor research, development, and production. The CHIPS Act will provide funding over five years to build, expand or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing, advanced packing or research and development.
The Advanced Manufacturing Investment Credit
The CHIPS Act also included the new Section 48D, The Advanced Manufacturing Investment Credit (AMTC). This provides manufacturers with a credit equal to 25% of the tax basis of qualified property placed in service by the taxpayer during the year. The credit is available for qualifying property placed in service after December 31, 2022 for which construction begins before January 1, 2027. Qualified property includes any tangible depreciable property that is an integral part of the manufacturing facility. It also includes buildings and structural components related to manufacturing. If eligible, taxpayers may choose to treat the credit as a payment against tax (“direct pay”). The additional payment of tax may be refundable, creating additional cash flow to taxpayers.
Taxpayer Eligibility Rules
Taxpayers that are ineligible to claim the AMTC include foreign entities and taxpayers who have engaged in transactions involving expansion of semiconductor manufacturing in China or other foreign countries included on the OFAC list. Additionally, any private companies that receive financial assistance through the CHIP Act are restricted from expanding certain chip manufacturing in China for 10 years.
CHIPS for America Workforce and Educational Fund
The legislation also includes the CHIPS for America Workforce and Educational Fund, which will provide funding for education in the fields of science, technology, engineering and mathematics (STEM). This includes research and engagement of students at all levels of education, STEM learning opportunities, including before and after school and summer programs and workforce development.
The CHIPS Act also includes significant investments in technologies and new research in the fight against climate change. Over the next 5 years, approximately $67 billion will be directed toward accelerating the growth of zero carbon industries and conducting climate relevant research. This makes the CHIPS Act one of the largest climate bills ever passed by Congress.
Goal of the Legislation
America invented the semiconductor, but today produces only 10 percent of the world’s supply and none of the most advanced chips. Instead, we rely on East Asia for 75 percent of the global production. The goal of this legislation is to help the United States regain a leading position in chip manufacturing by onshoring production, which will help lower costs and combat supply chain disruption. It is also aimed at developing the workforce by urging companies to partner with community colleges and technical schools to offer training and apprenticeship programs. These incentives will secure domestic supply while creating tens of thousands of good-paying, union construction jobs and thousands more high-skilled manufacturing jobs.
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If you are a manufacturer interested in learning more about the CHIPS and Science Act of 2022 and related tax implications, please contact us today. We look forward to connecting!