Late last week both houses of Congress passed the CHIPS and Science Act. This bill was designed to make U.S. Semiconductor Manufacturing more competitive with China. While this bill was aimed at the Semiconductor manufacturing industry, there are significant parts of this bill that will have far reaching impact.
The bill sets up a fund known as the “Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America fund”. This $52.7 billion fund is to support semiconductor provisions that were included in the 2021 National Defense Authorization Act (NDAA). Activities that will be funded include $50 billion for the CHIPS for America Fund to develop manufacturing capacity in the United States. This $50 billion is split between a Semiconductor Incentive program detailed in Section 9902 of the NDAA, and a $11 billion workforce development program including the establishment of a National Semiconductor Technology Center as detailed in Section 9906 of the NDAA.
In additional to the portions of the bill dealing with Semiconductors, the bill provides $1.5 billion for the Public Wireless Supply Chain Innovation Fund. This fund is designed to accelerate the movement to 5G. Under the NDAA this fund will have the ability to reward grants on a competitive basis to promote 5G technology, and successor networks.
One of the largest areas of interest in this bill relates to the 25% Advanced Manufacturing Investment Credit. Under this new legislation, a 25% tax credit is established for investments in semiconductor manufacturing and semiconductor manufacturing equipment. The credit is calculated based on the qualified investment in qualified property for a given taxable year. To qualify the investment must be in tangible property for which depreciation is allowable and meets the original use test for the taxpayer. The bill is clear that as it relates to Buildings, the portions of the building that are used for offices, administrative services, and other functions will not qualify. This means that a taxpayer will need an analysis to separate out the property eligible in a construction project to redeem the credit. Additionally, the bill includes an ability to elect to treat the credit as a payment against tax (“direct pay”), due to the size of some of these investments this direct pay option will make the credit even more valuable for many taxpayers.
While these are some highlights of the over 1000-page bill there are other important provisions. These include funding for regional tech hubs, funding for STEM education, and many others. The overall effect of the bill will be felt across many industries including manufacturing, construction, and other areas.
Shortly after this bill passed, a surprise announcement was made by Senator Joe Manchin and Senator Chuck Schumer that they had reached a compromise on the Inflation Reduction Act of 2022. This bill is a pared down version of the Build Back Better Bill and has been designed to pass the senate through reconciliation. This bill will have a much larger effect on tax law and businesses. In the coming days McGuire Sponsel will provide a more detailed update on this pending legislation.
Inflation Reduction Act of 2022: Read More
Upcoming Webinar: Please register for What CPAs Need to Know about the CHIPS+ and Inflation Reduction Acts of 2022 on Aug 10, 2022 11:00 AM EDT at: https://attendee.gotowebinar.com/register/8416591511163724300
David McGuire is a leading expert on cost segregation, fixed assets and depreciation law and a co-founder of McGuire Sponsel.
McGuire is an expert on for how tax law affects depreciation. His knowledge in determining asset costs and classifications has held up against IRS scrutiny and has built the firm into a trusted industry partner.