Congress passes the CHIPS and Science Act of 2022

Taxpayers may elect to treat the credit as a payment against tax – i.e., “direct pay.” 

This tax credit equals 25% of qualified costs for property placed in service after December 31, 2022, and for which construction begins before January 1, 2027.  Qualified property includes tangible property:

• To which depreciation or amortization is allowable;
• That was constructed, reconstructed, or erected by the taxpayer or acquired by the taxpayer (if the original use of the property commences by the taxpayer); and
• That is integral to the operation of an advanced manufacturing facility whose primary purpose is manufacturing semiconductors or semiconductor manufacturing equipment.

Qualified property can also include a building or portion of a building or certain structural components of it, except for the portion of the building used for offices, administrative services, or other functions unrelated to manufacturing. 

Additionally, the act:

• Establishes the CHIPS for America Fund, which provides $52.7 billion of funding for development of domestic manufacturing capabilities, R&D, and workforce development programs. This includes $39 billion earmarked for financial assistance to build, expand, or modernize domestic semiconductor facilities, and $6 billion of this funding to be used for direct loans or loan guarantees. Another $11 billion will go toward advanced research and development programs under the US Department of Commerce, and $2 billion to the Department of Defense for national defense technology applications and semiconductor workforce training.
• Authorizes more than $80 billion for the US Department of Commerce over the next five years to research new ideas, build STEM workforce, and expand rural STEM education, as well as an additional $10 billion to create 20 regional technology and innovation hubs to focus on technology development, job creation, and expanding US innovation capacity.
• Appropriates $1.5 billion to support innovation in the US mobile broadband market.
• Establishes a Moon to Mars Program, which would include Artemis missions, to achieve human exploration of Mars, and extends the authorization for the International Space Station through 2030.

CHIPS recipients are barred from using the money for stock buybacks or to pay dividends.  Additionally, recipients must not materially expand chip manufacturing capacity in China, North Korea, Russia, Iran, and any other country identified by the US Department of Commerce to be engaged in actions that harm US national security or foreign policy. 

Mazars’ insight

Taxpayers should evaluate if their manufacturing processes qualify as semiconductor manufacturing and/or manufacturing of equipment for the semiconductor manufacturing process and the timing of their planned investments to be eligible for the credit.  Additionally, taxpayers should evaluate the impact of other tax provisions related to section 174 costs required to amortized starting in 2022 and bonus depreciation. 

Please contact your Mazars professional for additional information.

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.