Earlier this spring, the Department of Treasury published proposed rules with respect to the advanced manufacturing investment credit established under the CHIPS and Science Act (which was signed into law on August 9, 2022).
While these are just proposed rules surrounding the potential tax credit and are not yet set in stone, companies and manufacturers may already have questions about whether they stand to benefit. Below we've provided a short summary and clarity on some of the larger components of the credit.
Q: What is the new tax credit?
A: The advanced manufacturing investment credit is a tax credit of 25% of the basis of any qualified property that is part of an eligible taxpayer's advanced manufacturing facility if the property is placed in service during such a taxable year and after December 31, 2022.
Q: What qualifies as an advanced manufacturing facility?
A: An advanced manufacturing facility is defined as a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment. Qualified property is generally tangible property (a) for which depreciation or amortization in lieu of depreciation is permitted; (b) that is constructed, reconstructed, or erected by the eligible taxpayer, or acquired by the taxpayer so long as that property has not been used previously; and (c) which is integral to the operation of the advanced manufacturing facility.
However, the proposed regulations state that human resources, personnel services, payroll, legal, accounting, sales, distribution, and non-cyber security functions do not qualify as property eligible for the tax credit because they are unrelated to the manufacturing of semiconductors or semiconductor manufacturing equipment. Research and storage facilities may, in certain instances, constitute qualified property.
Q: What about any previously claimed tax credits?
A: The proposed rules provide for a recapture of all tax credits previously claimed if the taxpayer undertakes a significant transaction involving a material expansion in a "foreign country of concern" within 10 years of claiming a tax credit.
A significant transaction involving a material expansion includes, among other things:
- Any investment or series of investments, whether proposed, pending, or completed that is valued at $100,000 or more, including a merger, acquisition, consolidation, formation of a joint venture, or long-term lease or concession arrangement.
- A transaction that involves the expansion of manufacturing capacity for legacy semiconductors (other than with respect to an existing facility or equipment of an applicable taxpayer for manufacturing legacy semiconductors) if less than 85% of the output of the semiconductor manufacturing facility by value is incorporated into final products that are used or consumed in the market of a foreign country of concern.
- The licensing of technology or any joint research arrangement with a foreign entity of concern that relates to a technology or product that raises national security concerns.
- Any other investment, including capital expenditures or the formation of a subsidiary.
As stated, the proposed rules are still subject to comment and, if requested, a public hearing, prior to taking effect. Should you have additional questions on the eligibility of your company or facility, please contact the attorneys at Calfee to assist in the process.
Please subscribe to the CHIPS and Science Act email list to receive related future legal alerts, government reports, and event invitations, and follow Calfee on social media for notifications on new blog posts.
Learn more about Calfee's commitment to supporting businesses in Ohio: https://www.calfee.com/calfee-supports-businesses-ohio
Calfee Connections blogs, vlogs, and other educational content are intended to inform and educate readers about legal developments and are not intended as legal advice for any specific individual or specific situation. Please consult with your attorney regarding any legal questions you may have. With regard to all content including case studies or descriptions, past outcomes do not predict future results. The opinions expressed may not necessarily reflect the viewpoints of all attorneys and professionals of Calfee, Halter & Griswold LLP or its subsidiary, Calfee Strategic Solutions, LLC.
Non-legal business services are provided by Calfee Strategic Solutions, LLC, a wholly owned subsidiary of Calfee, Halter & Griswold. Calfee Strategic Solutions is not a law firm and does not provide legal services to clients. Although many of the professionals in Calfee’s Government Relations and Legislation group and Investment Management group are attorneys, the non-licensed professionals in this group are not authorized to engage in the practice of law. Accordingly, our non-licensed professionals’ advice should not be regarded as legal advice, and their services should not be considered the practice of law.
Updates related to all government assistance/incentive programs are provided with the most current information made available to Calfee at the time of publication. Clarifications and further guidance may be disseminated by government authorities on an ongoing basis. All information should be reaffirmed prior to the submission of any application and/or program participation.
- Tax Credits Under the CHIPS and Science Act: Proposed Rules Rollout
- The Time Is Now: U.S. Dept. of Commerce Accepting Applications for CHIPS Act Incentives
- A Primer on Purchase Price Adjustments – Middle Market Deal Corner
- Calfee NOW: Congressman Mike Carey
- The Race to Secure CHIPS and Science Act Incentives: Are You Ready?
- A Variety Pack – Understanding The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022
- How Tech Companies May Mitigate Risk When Expanding Operations in Ohio
- Calfee NOW: Ohio State Representative-Elect Steve Demetriou
- Tips for Tech Companies Hoping to Expand in Ohio Under the CHIPS Act
- FTX’s Free Fall Into Bankruptcy – Will Crypto Investors and Crypto Creditors Lose Again?