The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) established a $52.7 billion CHIPS for America Fund to invest in the development of domestic manufacturing capabilities, research and development (R&D), and workforce development programs within the U.S. semiconductor chip manufacturing industry.
On February 28, 2023, the U.S. Department of Commerce, which is tasked with administering the CHIPS for America Fund, released the first round of guidance for potential applicants, including outlining application and project requirements for obtaining funding under the CHIPS Act.
CHIPS Act Investment Tax Credit
Applicants interested in CHIPS for America funding are encouraged by the Commerce Department to also claim the Advanced Manufacturing Investment Credit (CHIPS Act Tax Credit). The CHIPS Act Investment Tax Credit is equal to 25% of qualified costs for property placed in service after December 31, 2022, and construction for which begins before January 1, 2027.
The requirements to be treated as qualified property include:
- 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), and
- Integral to the operation of an advanced manufacturing facility whose primary purpose is manufacturing semiconductors or semiconductor manufacturing equipment
Treasury issued proposed regulations on the CHIPS Act Tax Credit in March. Read a summary of the proposed regulations and commonly asked questions about the CHIPS Act tax credit in our FORsights™ article.
CHIPS for America Fund Applications
In the meantime, taxpayers interested in applying for CHIPS for America funding have a lot of information to compile to meet the key priorities the Commerce Department is looking to achieve through this program. Here is a high-level overview of what to expect:
This first round of funding is focused on projects to construct, expand, or modernize commercial facilities for the production of leading-edge, current-generation, and mature-node semiconductors, including front-end wafer fabrication and back-end packaging. Later this spring, the Commerce Department will do another funding round for semiconductor materials and equipment facilities; then, in the fall, it’ll focus on R&D facilities.
Funding will be available as grants/cooperative agreements, federal loans, and/or federal guarantees of third-party loans and will be distributed in tranches tied to project milestones. Awards are expected to range between 5 to 15% of project capital expenditures, with the total award amount (which may consist of more than one type of funding) not exceeding 35% of project capital expenditures.
Applicants are encouraged to leverage private capital, including putting up their own financing and sourcing investment from third parties so that the CHIPS Act funding is complementary to the rest of the project financing. Creative financing structures, such as private debt and infrastructure funds, are encouraged to reduce overall cost of capital.
Applications will be evaluated for:
- Financial Strength & Commercial Viability – Applicants will need to provide certain project-specific and company-level financial information to show that the applicant has financing, e.g., private sector investment, and reliable cash flows to get the project up and running, and to provide continued investment and upgrades to the project in the long term. Specifically, the application should include a financial model for the proposed project that shows projected cash flows, internal rates of return, and profitability metrics, and detail the company’s intentions with respect to stock buyback over five years.
- Technical Feasibility & Readiness – Applicants should provide a clear project execution plan, including major construction and operational milestones, construction rights and permits, and key contractual arrangements, including any existing infrastructure agreements with local and state permitting authorities that may help keep projects on schedule.
- Workforce Development – Applications also should include a workforce plan providing a detailed description of how the applicant and construction partners will recruit, hire, train, and retain a diverse and skilled workforce. The National Institute of Standards and Technology offers more information on the workforce component.
- Efforts to Spur Inclusive Economic Growth – Applicants are encouraged to partner and collaborate with other parties to make their proposal more attractive. For example, this could be structured as consortium-like arrangements by semiconductor fabricators and their upstream suppliers, equipment providers, and downstream partners, or projects that enable design firms to succeed and provide access to design tools and intellectual property.
Other ways to meet this requirement include committing to future investments in the U.S. semiconductor industry; supporting R&D programs; creating opportunities for minority-owned, veteran-owned, women-owned, and small businesses; demonstrating climate and environmental responsibility; investing in local communities; or committing to using U.S.-produced iron, steel, and construction materials.
- Economic & National Security – The Commerce Department would like to see some of the funding further U.S. national security interests, e.g., contracts to manufacture semiconductors for the U.S. Department of Defense.
Note that there are additional requirements for applicants requesting more than $150 million in funding:
- Provide a Plan for Affordable Childcare Access for Facility & Construction Workers – This could look like constructing childcare facilities near the project site, paying local childcare providers to add capacity at affordable rates, or otherwise subsidizing the cost of childcare.
- Share Profits With the Government – Recipients of more than $150 million in direct funding will be required to share with the federal government a portion of any cash flows or returns that significantly exceed the applicant’s projections above an agreed-upon threshold.
CHIPS for America Application Process & Timing
Prior to applying for CHIPS for America funding, applicants should submit a statement of interest to the CHIPS Program Office at the Commerce Department, and an optional pre-application if the applicant wants to get written feedback and recommendations from the Commerce Department before officially applying for funding.
Optional pre-applications and full applications for leading-edge facilities will be accepted on a rolling basis, which began March 31, 2023. Pre-applications are recommended for current-generation, mature-node, and back-end production facilities and will be accepted on a rolling basis starting on May 1, 2023, and full applications beginning June 26, 2023.
The Commerce Department also will require finalists to go through a due diligence phase and provide additional information on national security, financial, environmental, and other issues before funding is officially awarded.
If you’re interested in applying for the CHIPS Act Investment Tax Credit and other CHIPS Act funding, please reach out to a professional at FORVIS or use the Contact Us form below.