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TAX TAKE: Where Will the Chips Fall? Bill Supporting Domestic Semiconductor Manufacturing Picks Up Steam

Tax Alert

Last week, the Senate held a procedural vote to allow a smaller version of the Creating Helpful Incentives to Produce Semiconductors for America Fund (CHIPS) Act to advance toward a full vote — a big step forward for major legislation that many believe is key to bolstering domestic production of these critical components in everything from cars to cell phones.

While the bill cleared this procedural hurdle, potential changes were still being hammered out late last week. In the tax realm, a cornerstone provision is an investment tax credit (ITC) for certain expenditures related to semiconductor manufacturing. The credit would be subject to recapture if ITC beneficiaries engage in proscribed activities related to semiconductor manufacturing activities in certain listed countries, including China.

While many had hoped that a retroactive extension of the research and development (R&D) amortization provision enacted under the Tax Cuts and Jobs Act (TCJA) would be included, its prospects seem challenging. Further, it is not clear at this time that proponents of the CHIPS bill have enough votes to survive a filibuster. While Senator John Cornyn (R-TX) has long been a vocal supporter of CHIPS, some senators have been more circumspect, and others have vocalized flat out opposition to the measure.

The goal is to get the bill to President Biden's desk by August, which means this week is pivotal. If the bill clears the Senate, it will then head to the House, which passed a different bill supporting the semiconductor industry (the America COMPETES Act) earlier this year. Nonetheless, House Speaker Nancy Pelosi (D-CA) says she backs the current Senate version. #TaxTake

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