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Tax Credits and Incentives

Senate Set to Vote on Semiconductor Bill With Tax Credits

Jeff Carlson  

Jeff Carlson  

The Senate plans to vote as early as this week on an expanded version of a semiconductor manufacturing and economic competitiveness package with an investment tax credit for applicable facilities and equipment.

The legislation, Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act, resembles the United States Innovation and Competition Act (USICA), a bill intended to boost U.S. competitiveness against China. That measure passed the Senate last year but never cleared the House of Representatives.

The bill now under consideration combines the federal semiconductor incentives Senate Majority Leader Charles Schumer, Democrat of New York, has been pushing with the investment in research and development and other innovation programs. The remainder of policies from USICA continue to be negotiated as part of the conference committee to be considered later this year.

The tax provision creates a 25% investment tax credit for investments in semiconductor manufacturing and includes incentives for 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 (“direct pay”). The credit is provided for property which is placed in service after December 31, 2022, and for which construction begins before January 1, 2027.

Currently, only 12% of chips are manufactured domestically, compared to 37% in the 1990s, and many foreign competitors, including China, are investing heavily to dominate the industry. Nearly 75% of global semiconductor production is now occurring in East Asia and foreign government subsidies drive the majority of the cost difference for producing semiconductors overseas. Schumer said that his legislation would help turn the tide on this trend by bringing manufacturing back to the U.S. along with investing in other key technology.

 

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