On October 22, 2024, the Treasury Department issued final regulations to implement the advanced manufacturing investment credit established by the CHIPS Act of 2022 to incentivize the manufacture of semiconductors and semiconductor manufacturing equipment within the United States.
Section 48D provides that the credit is an amount equal to 25 percent of the qualified investment for the taxable year with respect to an advanced manufacturing facility of an eligible taxpayer. An "advanced manufacturing facility," is defined as a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment.
Section 48D(b)(1) provides that the "qualified investment" with respect to the advanced manufacturing facility for the taxable year is the basis of any qualified property placed in service by the taxpayer during such taxable year which is part of an advanced manufacturing facility. Section 48D(b)(2) provides that, for purposes of section 48D(b), the term "qualified property" means tangible property with respect to which depreciation (or amortization in lieu of depreciation) is allowable that is integral to the operation of the advanced manufacturing facility if, (I) constructed, reconstructed, or erected by the taxpayer, or (II) acquired by the taxpayer, if the original use of such property commences with the taxpayer.
Qualified property includes any building or its structural components satisfying such requirements unless the building or portion of the building is used for offices, administrative services, or other functions unrelated to manufacturing.
The Treasury Department and the IRS have refined and clarified certain aspects of the proposed regulations in these final regulations. Specifically, the definitions of "semiconductor manufacturing", "semiconductor manufacturing equipment", and "significant transaction" have been clarified as has the meaning of the term “offices, administrative services and other functions unrelated to manufacturing”.
However, whether a particular building or portion of a building is used as an office, for administrative services, or is unrelated to manufacturing is a factual determination. A factual determination of what basis is part of the manufacturing facility versus the functions unrelated to manufacturing is not a square foot exercise. For example, building electrical system costs will be disproportionately allocable to manufacturing versus administrative services. To correctly calculate the qualified property basis and the credit, a cost segregation study based on estimates from the blueprints and drawings is essential.
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