Congress has passed the CHIPS Act of 2022 (HR 4346) and President Biden is expected to sign the measure into law soon. The Act provides $52 billion in funding to companies that build or expand semiconductor production facilities in the U.S. as well as funding for development of related emerging technologies.
While this is a massive amount of tax credits for an industry that is already profitable, probably the only way to justify this giveaway is to take it into the context that China subsidizes the semiconductor industry $150 billion a year and South Korea much more than that.
The tax provision in the Act that creates this is the §48D advanced manufacturing investment credit. It's a new investment credit equal to 25% of the taxpayer’s qualified investment during the taxable year for any advanced manufacturing facility of an eligible taxpayer. These are defined as:
- An advanced manufacturing facility is a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment.
- The qualified investment is the basis of any qualified property placed in service by the taxpayer during the tax year.
- Qualified property is tangible property which is constructed, reconstructed, or erected by the taxpayer or acquired by the taxpayer if the original use of the property commences with the taxpayer.
- The property must be depreciable or amortizable.
- The property must be integral to the operation of the advanced manufacturing facility.
- Qualified property includes buildings and structural components but not any portion of buildings used for offices, administration, etc. or other functions not related to manufacturing.
- Property for which the §47(c) rehabilitation credit applies doesn’t count.
The advanced manufacturing credit requires that the property is located in the U.S.
The credit applies to property placed in service after December 31, 2022 through December 31, 2026. For construction that began before January 1, 2023, the credit applies only to property constructed after the date of enactment.