Updated: Semiconductor Investment Tax Credit becomes Law

July 28, 2022

Update:  President Joe Biden signed the legislation into law on August 9, 2022.

Original article:

The Senate on July 27th approved legislation that provides a 25 percent tax credit for manufacturing semiconductors in the United States. The measure is a part of a larger piece of legislation, dubbed the “Chips and Science” bill, that seeks to boost semiconductor (or chips) production in the U.S. Support for passage was bipartisan, with a 64-33 vote.  

The tax credit is eligible for “direct pay” as payment against tax. It is for qualifying property that is either placed in service after December 31, 2022, or for property where construction on it begins before January 1, 2027. The technology that stems from the credit must be deployed from the United States, according to President Joe Biden.

“They get the money, they invest, they find a way, they find an answer. They have to invest in America, in a facility here in America,” the president told CEOs and Labor leaders on July 25th when speaking about the prospect of passing of the bill.

His reference to “in America” should be considered in the U.S.

Details on the tax credit were published in the Congressional Record and can be found here.

Next Steps:

The House is expected to approve the legislation before adjourning for the August recess, which is scheduled to begin on August 1st.  

Passage will likely be bipartisan as some House Democrats are expected to oppose the bill because it does not contain tax cuts for individuals and families. Their opposition is expected to be outweighed by Republican support for the legislation, making passage likely.

Biden is expected to sign the bill into law shortly after it passes both chambers of Congress.

Left on the Cutting Room Floor:

Early on, the legislation was expected to include a host of tax provisions. That list included allowing R&D costs to be expensed instead of amortized and removing the limits on the deduction for business interest expense. These provisions were cut from the bill because some lawmakers did not want to provide businesses with additional tax relief without providing aid to families and individuals.

These tax provisions are now expected to be a part of a year-end tax bill that will likely include a host of other tax measures. Lawmakers are expected take up this bill after the upcoming elections in November. The current thinking is that with the election over lawmakers will be able to put aside their partisan differences on tax measures and pass the bill.  The bill is expected to only contain tax relief and not tax increases.

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