The CHIPS Act is an opportunity for small, medium and large companies to not only make a profit but help the American economy in a broader sense. On August 9, 2022 President Biden signed the bipartisan and well-received act into law. One of the key components of the act is tax incentives.
Currently, the United States produces somewhere between 10 and 12 percent of the world’s computer chips. SME, a non-profit that educates about and encourages U.S. manufacturing, notes this number is down from 37 percent in 1990. SME also states that while we don’t produce a large percentage of chips here, the USA is the cutting edge for innovation and R&D related to chips.
Why did the USA stop making chips? A book could probably be written on the subject but you can also get at the basic reason in a sentence; it was cheaper to outsource manufacturing (https://www.businessinsider.com/why-us-doesnt-make-chips-semiconductor-shortage-2021-4). During the Covid pandemic, the downside to the savings became apparent. Supply chains became disrupted and shortages were the result.
The chips we import do not always come from nations that are hostile (or might conceivably become hostile) but as we’ve found there are events that can disrupt shipping that have nothing to do with war or general hostility. In fact, friendly Taiwan produces the most chips (https://tecvalue.com/which-country-produces-the-most-number-of-chips/). The top three producers are Taiwan, South Korea and Japan. Hostility is not a prerequisite for a shortage and short-term goals, like saving by outsourcing, but sometimes creates long-term problems.
Why are chips important? The BBC has a piece detailing how chips are used in “electric scooters to hypersonic aircraft, pacemakers to weather-predicting supercomputers.” These are just a tiny selection of technology, and some things we barely regard as technology anymore, that rely on this technology. The transistor radio doesn’t exist without transistors (a semiconductor).
How does this make your business money? The CHIPS act encourages U.S. companies to manufacture or support the manufacture of chips. The act also comes with $52 billion in funding and numerous tax incentives.
The U.S. Commerce Department says that funds will be used preferentially on a state and local level. “The Department expects to give preference to projects that include state and local incentive packages that maximize regional and local competitiveness, invest in the surrounding community, and prioritize broad economic gains, rather than outsize financial contributions to a single company.”
Details are still forthcoming but the team who will implement this is being put in place . The details will matter for your business and potentially your taxes if you are in, or plan to get into, the chip business.
Learn more about advantageous tax credits for your business by visiting our website.
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