SIA Supports Holistic Approach to Implementing CHIPS Act’s Advanced Manufacturing Tax Credit

Monday, May 22, 2023, 7:20pm

by Molly O’Leary, Director of Government Affairs

The CHIPS and Science Act, landmark legislation enacted last year to reinvigorate domestic semiconductor production and innovation, has already sparked substantial company investment announcements that will create jobs and strengthen America’s economy, national security, and global competitiveness. As part of our ongoing effort to provide input to government leaders during the implementation of this critical new law, SIA today submitted comments on the proposed rule of the Internal Revenue Service (IRS) and the Treasury Department to implement the CHIPS Act “advanced manufacturing investment credit.” In the filing, SIA commends Treasury for adopting a holistic approach to implementing the tax credit, while seeking clarifications or technical changes to provide taxpayers with more certainty and flexibility.

The tax credit, an integral part of the CHIPS Act incentives to strengthen the semiconductor ecosystem in the U.S., complements the grant program implemented by the Commerce Department to promote semiconductor manufacturing. The complex, technologically advanced processes of designing and manufacturing semiconductors and semiconductor manufacturing equipment require high levels of investment in facilities and equipment due to the complexity of the technology and the rigorous and exacting standards needed for construction, equipment, and infrastructure. Congress adopted the advanced manufacturing investment credit as part of the CHIPS Act to act as a powerful incentive to advance the goal of making the U.S. a competitive place for semiconductor manufacturing. The proposed regulations from Treasury and the IRS set forth the parameters of eligible investments for companies seeking to claim the credit.

The proposed regulations generally adopt a sound approach to implement the credit. Consistent with congressional intent to provide a credit for qualified investments “integral to the operation” of the facility, Treasury proposes to provide taxpayers with a credit for a wide range of investments necessary to manufacture semiconductors and semiconductor manufacturing equipment. In other words, the credit applies not only to the clean room where fabrication is conducted, but accompanying equipment and infrastructure needed to make the process work. However, SIA calls on Treasury to clarify that the qualified investments listed in the proposal are illustrative and not an exhaustive list. Treasury also sets forth reasonable rules governing the eligibility for the credit for projects that commence construction prior to December 31, 2026, but continue after that date. This is important since many projects will take years to complete.

SIA’s comments provide feedback on various technical aspects of the proposal, such as clarifying the definition of the term “semiconductor” to include semiconductor grade polysilicon, semiconductor silicon wafers, and compound semiconductors. Similarly, the comments seek clarification on the application of the credit for leased property, refurbished equipment, and other issues. SIA also comments on the “recapture” provision – a part of the CHIPS Act that restricts tax beneficiaries from engaging in certain transactions in China or another foreign country of concern. The Commerce Department proposed largely similar regulations to implement “guardrails” applicable to funding recipients of CHIPS grants. SIA also filed comments today on that proposal. In that filing, SIA urges Commerce and Treasury to align the rules, where applicable, in order to facilitate compliance with the grant program and credit recapture requirements and reduce administrative burdens, particularly for companies who participate in both the direct funding program and the tax credit.

The advanced manufacturing investment credit will be a driving force of investments in semiconductor manufacturing and equipment manufacturing facilities in the U.S., and SIA looks forward to the prompt implementation of final regulations to provide certainty and flexibility to the semiconductor industry.