Sticking this month with the theme of tax expenditures, I was curious about the federal Advanced Manufacturing Investment Credit. The CHIPS Act of 2022 established this hefty 25% tax credit for investments in semiconductor manufacturing. It covers manufacturing equipment, construction of manufacturing facilities, and the manufacture of specialized tooling equipment. The credit is available for property placed in service after December 31, 2022, and for construction that begins before January 1, 2027. The tax credit is a companion to the $39 billion in incentive funds to support US semiconductor manufacturing available from the CHIPS for America Fund.
The FY2025 US Tax Expenditures report estimates the value of tax credit at $790 million in 2024. The report also estimates a total cost of $44.3 billion for the period 2024-2033. In other words, the anticipated cost of the tax credit exceeds the value of the direct incentives.
The recently released IRS guidance and rules require a pre-filing registration process that taxpayers must follow to take the tax credit. My understanding is that this is not typical for federal tax credits, though it is a common procedure for state economic development tax credits. Taxpayers must register each qualified investment in an advanced manufacturing facility through the IRS electronic portal. Required information includes location, “supporting documentation,” beginning construction date, and placed in service date. A separate registration number will be provided for each qualified investment for which the taxpayer provides information.
The pre-registration process is an important component of the “elective payment” element of the tax credit. Elective payment means that the credit is treated as a “payment against the Federal income tax equal to the amount of the credit rather than a credit against the taxpayer’s Federal income tax liability for that taxable year.” This means that companies can receive a payment instead of claiming the credit.
It will be interesting to track this tax credit to see how much of it is taken and when. In our experience, state tax credits are rarely used at 100% of the allowable amount. It will also be interesting to see how much visibility taxpayers will have into its use, beyond the top line numbers in the tax expenditures report. The CHIPS Act includes substantial reporting requirements, but our state level experience suggests there will be much less insight into tax credit use than into the grants and loans offered through the CHIPS for America Fund.
Photo Credit – TSMC Arizona
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