On July 28, 2022, Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022 to promote domestic manufacturing of semiconductor chips.
This bill originally started out as the United States Innovation and Competition Act of 2021 (USICA), which was passed by the Senate, and the America COMPETES Act of 2022, which passed in the House earlier this session. The two chambers then put together a Conference Committee with 50 House and 14 Senate members to reconcile the differences between the two versions before the bill could become law.
From a tax policy perspective, the CHIPS Act establishes the Advanced Manufacturing Investment Credit to incentivize the manufacturing of semiconductors, as well as for the manufacturing of the specialized tooling equipment required in the semiconductor manufacturing process.
Taxpayers may elect to treat the credit as a payment against tax, i.e., “direct pay.” This tax credit equals 25% of qualified costs and is available for property placed in service after December 31, 2022, and for which construction begins before January 1, 2027.
Qualified property is all of the following:
- Tangible property with respect to which depreciation or amortization is allowable
- Constructed, reconstructed, or erected by the taxpayer or acquired by the taxpayer (if the original use of the property commences by the taxpayer)
- Integral to the operation of an advanced manufacturing facility whose primary purpose is manufacturing semiconductors or semiconductor manufacturing equipment
Qualified property can also include a building or portion of one or certain structural components of it, except for the portion of the building used for offices, administrative services, or other functions unrelated to manufacturing.
Here are some other notable highlights of the CHIPS and Science Act of 2022:
- Establishes the CHIPS for America Fund, which provides $52.7 billion of funding for development of domestic manufacturing capabilities, R&D, and workforce development programs. Of this, $39 billion is appropriated for financial assistance to build, expand, or modernize domestic semiconductor facilities, with $6 billion of this funding to be used for direct loans or loan guarantees.
- Another $11 billion will go toward advanced research and development programs under the U.S. Department of Commerce, and $2 billion is slated for the Department of Defense for national defense technology applications and semiconductor workforce training.
- Authorizes more than $80 billion for the U.S. Department of Commerce over the next five years to research new ideas, build the STEM workforce, and expand rural STEM education, as well as an additional $10 billion to create 20 regional technology and innovation hubs to focus on technology development, job creation, and expanding U.S. innovation capacity.
- Appropriates $1.5 billion to support innovation in the U.S. mobile broadband market.
- Establishes a Moon to Mars Program, which would include Artemis missions, to achieve human exploration of Mars, and extends the authorization for the International Space Station through 2030.
Note, CHIPS for America Fund recipients are barred from using the money to buy stock of the company or parent company or to pay dividends. Additionally, recipients must agree to not materially expand chip manufacturing capacity in China, North Korea, Iran, Russian, and any other country identified by the U.S. Department of Commerce to be engaged in actions that harm U.S. national security or foreign policy.
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