CHIPS Act Investment Tax Credit Expanded
Domestic manufacturers of semiconductor wafers will soon qualify for an investment tax credit under the CHIPS and Science Act of 2022 (Law360, subscription).
What’s going on: In final guidance released Tuesday, the Treasury Department “clarifies the tax credit’s definition of ‘semiconductor manufacturing,’ which was introduced in the March 2023 proposed rules. The clarification also benefits some in the renewable energy supply chain because these semiconductors and wafers are … critical components in solar energy technologies.”
- Facilities that make and package semiconductors will also qualify for the 25% advanced manufacturing investment credit, which goes into effect Dec. 23.
- “However, the incentive only applies to property placed in service after Dec. 31, 2023, and for a qualified property that began construction after enactment of the CHIPS and Science Act on Aug. 9, 2022, and was placed in service after Dec. 31, 2022.”
- It will not apply to factories that start construction after 2026.
What it includes (and doesn’t): The Treasury Department defines semiconductor wafer production to include growing single-crystal boules and ingots, etching and polishing, slicing, cleaning, bonding, epitaxial deposition and metrology.
- It excludes facilities that make the raw materials used in wafer production, such as polysilicon.
Why it’s important: The credit, detailed in Section 48D of the Internal Revenue Code, was established as part of the 2022 legislation “to bolster and secure the industry’s supply chain amid global competition. Companies seeking to take advantage of the tax perk can also qualify to receive direct cash payment of the credit amount from the government instead of claiming it as a refundable credit that lowers their tax liability.”
The backdrop: The final rule arrives on the heels of announcements by the Commerce Department of other CHIPS Act initiatives, including “a funding competition for up to $1.6 billion for the U.S. industry to develop innovative packaging flows for semiconductor technologies.”
Be warned: The final guidance includes a 10-year recapture rule “in the event that a semiconductor company significantly expands its manufacturing capacity” in China, North Korea, Iran or Russia.