The CHIPS Act provides temporary relief for the manufacturing sector in the form of a new, temporary, tax credit for producing semiconductors. The “advanced manufacturing investment credit” for investments in semiconductor manufacturing property amounts to 25% of qualified investment related to an advanced manufacturing facility, that is, a facility with the primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. Manufacturers may claim the credit for producing semiconductors or building specialized tooling equipment required in the semiconductor manufacturing process.
Any taxpayer is eligible to claim this credit if they are not a “foreign entity of concern” and have not made an “applicable transaction” during the taxable year.
The CHIPS Act tax credit is equal to 25% of any qualified investment, e.g., the basis of any qualified property, that is part of an advanced manufacturing facility and placed in service by the taxpayer after December 31, 2022. If construction began prior to January 1, 2023, the CHIPS Act tax credit is only available to the extent of the basis of qualified property attributable to the construction, reconstruction, or erection after the CHIPS Act was enacted on August 9, 2022.
The requirements to be treated as qualified property include:
The facility’s primary purpose must be to manufacture finished semiconductors or Semiconductor manufacturing equipment. This is a facts and circumstances test; however, the proposed regulations do clarify that a facility that manufactures, produces, grows, or extracts materials or Chemicals that are supplied to an advanced manufacturing facility that manufactures semiconductors, or semiconductor manufacturing equipment, does not meet the primary purpose requirement. Facts that may indicate a facility has a primary purpose of manufacturing finished semiconductors or manufacturing finished semiconductor manufacturing equipment include:
Treasury is asking for comments on whether for purposes of the CHIPS Act tax credit, the definition of “semiconductor” should include semiconductive substances on which an electronic device or system is manufactured, e.g., polysilicon and compound semiconductor wafers.
Eligible taxpayers may elect to treat the CHIPS Act tax credit as a payment against their federal income tax equal to the credit amount, even if the taxpayer has zero tax liability, effectively resulting in a refundable credit.
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