Recent Legislation Offers New and Enhanced Tax Credits and Incentives

The CHIPS and Science Act of 2022 was signed into law in August, with a goal to increase semiconductor chip manufacturing within the U.S. This was in addition to the Inflation Reduction Act of 2022 that included new and enhanced tax credits for green energy investments as well as qualifying research and development (R&D).

New federal tax credits, in addition to existing state and local incentives, may present opportunities to business owners. Below, we explore the various enhancements:

Tax credits for green energy investments in the Inflation Reduction Act

Advanced Manufacturing Production Credit (AMPC)

The Inflation Reduction Act introduced a new section to the tax code, Section 45X, that addresses the Advanced Manufacturing Production Credit (AMPC). This is a separate incentive from the credit under the CHIPS Act. The amount you receive for the AMPC depends on the eligible components produced and sold by you to an unrelated person. Eligible components for this credit include:

  • Solar energy components
  • Wind energy components
  • Inverters used to convert solar/wind from a direct current to an alternating current
  • Qualifying battery components
  • Applicable critical minerals processed by the taxpayer

An example of the credit for the production of battery cells that meet minimum standards is a credit of $35 per kilowatts hour of capacity. 

Investment Tax Credit (ITC)

Further, the Section 48 Investment Tax Credit (ITC) was extended to allow for a 30% credit for certain energy property (for construction beginning before the end of 2024). It also expanded the definition of “qualifying energy property” to include energy storage technology and interconnection property. Guidance specifies that the credit can be increased if certain domestic content requirements are met; if the property was placed in service in an Energy Community, as defined; or if it was placed in a low-income neighborhood or on Tribal lands. The credit amount is decreased if certain prevailing wage and apprenticeship requirements are not met, or exceptions to these requirements do not apply.

Advanced Energy Project Credit (AEPC)

This legislation also enhanced the Section 48C Advanced Energy Project Credit (AEPC), providing a 30% credit from any project that retrofits, expands or establishes a new manufacturing facility for the production of certain renewable energy property or components. The definition of qualifying equipment placed in service was expanded to include storage technology and grid modernization, carbon sequestration and the reduction of greenhouse gases. New requirements exist to meet prevailing wages and apprenticeship requirements to achieve the full 30% credit rate unless certain exceptions apply. 

Carbon Sequestration Tax Credit (CSTC)

The Section 45Q Carbon Sequestration Tax Credit (CSTC) was also improved and extended. Certain facilities that capture carbon oxide and either sequester or reuse the carbon qualify for a per metric ton tax credit (varies based on the disposal or reusage of the carbon). The minimum annual capture requirements were also lowered. To qualify, facilities must start construction prior to January 1, 2032.

Commercial Clean Vehicles Tax Credit (CCVTC)

The legislation created a new code, Section 45W, the Commercial Clean Vehicles Tax Credit (CCVTC). Eligible vehicles under 14,000 pounds with battery capacity of seven kilowatts per hour would qualify for a credit of up to $7,500. For qualifying vehicles with battery capacity of 15 kilowatts per hour or more, the credit is up to $40,000. The credit applies for vehicles placed in service after December 31, 2022 and before January 1, 2033.

Tax credits for R&D expanded under the Inflation Reduction Act

Historically, Qualified Research Expenditures (QREs) that a taxpayer incurs in a year over a certain base amount qualify for a tax credit under Section 41(h). This credit amount is equal to 20% of the QREs over the base amount. 

The Inflation Reduction Act expanded the credit specifically for Qualified Small Businesses (QSBs), which are startup businesses that have existed for five or less years and have annual sales of less than $5 million during the year in question. For tax years beginning after 2022, QSBs can take a credit of up to $500,000 annually against the employer portion of social security and Medicare taxes, and unused credits can be carried forward. Prior to this change, the credit was limited to $250,000 annually and could only offset the employer portion of the social security tax.

Tax credits and site selection for semiconductor manufacturing

The CHIPS and Science Act includes $52 billion for the semiconductor manufacturing sector to provide manufacturing and research grants to develop new or expanding plants. The Act also offers funding for R&D and workforce development programs, plus a new credit for chipmakers: the 25% Advanced Manufacturing Investment Credit (AMIC). Specifically, this credit is for an Advanced Manufacturing Facility (AMF), where its primary purpose is to manufacture semiconductors or semiconductor manufacturing equipment. Property placed in service after December 31, 2022 and prior to January 1, 2027 qualifies.

There is the chance for substantial positive economic impact on this industry under recent legislation. From job creation to new revenue, expansion can offer manufacturers many opportunities. It’s important for semiconductor manufacturers to partner with a site selection and incentives team to search for the best locations to expand based on factors including workforce, incentives, sites and infrastructure.

With most things, there will be challenges in the site selection process. Existing companies that maintain plants will have the upper hand, as new plant operations can take three to five years to obtain. The current demand for mega sites is high, and these plants require significant power, water and workforces, so it is important to thoroughly evaluate your options. Leading companies in this industry are strategically looking to expand in states with a low-cost business climate that offer access to affordable, reliable energy and a skilled workforce pipeline.

Main Takeaways

Government incentives are increasingly directed toward certain types of jobs and industries. Manufacturers that are ready to find the ideal place for your workforce, infrastructure, utilities and location should speak to a site selection and incentive professional to evaluate incentives and sites for your best outcome. In addition, understanding the federal, state and local credits at your disposal is important to a successful project. Sikich is uniquely qualified to assist you in navigating these complex rules. Contact a member of the Sikich team today to discuss your project and to understand the credits and incentives that might be available:

About our authors

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author