As we wrap up the CHIPS Act Series, we briefly cover the Inflation Reduction Act of 2022 (IRA) and credits associated with CHIPS and IRA and their many impacts on the manufacturing industry. The focus of the discussion centers on a high-level view of the New Advanced Manufacturing Credit, Section 45X – the Advanced Manufacturing Production Credit, which take effect in 2023 and will provide a tax credit for eligible components.
Listen in as Matt Brady, our Industrial Manufacturing Industry Leader, and Ron Wainwright, a Partner in our Tax Credits and Incentives Advisory practice, unpack the fourth and final installment of Cherry Bekaert’s Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act podcast series.
Wainwright also covers the advanced energy project credit, which falls under Section 48C, an investment credit with a base credit of 6%, with a potential increase up to 30% if the qualifying wage requirements are met.
Given the intricacies of the legislation and tax credits and provisions, our industry advisors plan to expand the series to address how industrial manufacturers can find new ways to monetize energy credits, dive into the 45Q credit around carbon oxide sequestrated and examine the “Technology Neutral” credits that may impact the industry.
See our previous podcasts in this series that you may have missed:
- CHIPS Act Deep Dive Part 1: New Federal Funding for the Industrial Manufacturing Industry
- CHIPS Act Deep Dive Part 2: Advanced Manufacturing Investment Tax Credit
- CHIPS Act Deep Dive Part 3: American Manufacturing Credit and Manufacturing Production Credit
- CHIPS Act Deep Dive Part 5: New Ways to Monetize Energy Tax Credits for the Industrial Industry
View All Industrial Manufacturing Podcasts
HOST: Hello, and welcome to Cherry Bekaert's Industrial Industry Podcast. My name is Matt Brady, and I am the Industrial Industry Leader at Cherry Bekaert.
HOST: For returning listeners, thank you for tuning back in to this series and our other podcasts. For new listeners, we appreciate you joining us.
HOST: At Cherry Bekaert, we want to do more than core audit and tax compliance; we want to provide proactive advice. Items like today's discussion around the CHIPS Act and our CHIPS Act series are evidence of that.
HOST: We have had three podcasts on the CHIPS Act so far. The first was an overview, the second covered one of the new credits, and the third discussed funding. This is podcast number four in the series.
HOST: Today we'll discuss interactions between the CHIPS Act and the Inflation Reduction Act of 2022, the new Advanced Manufacturing Investment Tax Credit (Section 48D), Section 45X, and a few other topics.
HOST: Before we get too far, I should introduce our guest, Ron Wainwright. Ron is a partner in our Strategic Tax Advisory group and contributed to podcasts one, two, and three. Ron, welcome back.
RON WAINWRIGHT: Thank you, Matt. Good to be back.
HOST: Ron, as we did in the prior podcasts, could you start with a short, high-level overview of the CHIPS Act, then discuss your observations on its interaction with the Inflation Reduction Act of 2022?
RON WAINWRIGHT: The CHIPS Act—Creating Helpful Incentives to Produce Semiconductors for America—was signed into law on August 9, 2022, as part of the CHIPS and Science Act of 2022. It is a $52.7 billion package providing generous tax incentives to increase domestic semiconductor production.
RON WAINWRIGHT: While the incentives are narrowly targeted, expanding semiconductor production will significantly benefit many manufacturers across the country. After August 9, we saw another landmark piece of tax legislation: the Inflation Reduction Act of 2022, signed on August 16, 2022.
RON WAINWRIGHT: The CHIPS Act carries $52.7 billion in authorization and roughly $200 billion in appropriations, so the total impact is $250 billion plus. The Inflation Reduction Act is about $502 billion. Both pieces of legislation include numerous provisions that impact and benefit the manufacturing industry.
HOST: Thank you for that high-level overview. One topic many listeners asked about is the new advanced manufacturing credit. Can you discuss that in more detail?
RON WAINWRIGHT: The Advanced Manufacturing Investment Tax Credit—often referred to as AMITC and codified as Section 48D—provides a 25% investment tax credit for investments made in semiconductor manufacturing. The credit covers manufacturing equipment, construction of semiconductor manufacturing facilities, and specialized tooling equipment required for semiconductor manufacturing.
RON WAINWRIGHT: The intent is to help restore U.S. leadership in semiconductor manufacturing and retain high-skill, high-wage jobs domestically. The CHIPS Act includes significant grants and funding to offset foreign cost differentials, and the 48D investment tax credit is a component of that broader strategy.
HOST: That context is helpful. Another credit listeners wanted more detail on is Section 45X, the production tax credit. Can you explain that?
RON WAINWRIGHT: Section 45X is a new production tax credit introduced by the Inflation Reduction Act. It provides credits to manufacturers of eligible components that are produced and sold to an unrelated party beginning after 2022.
RON WAINWRIGHT: The credit targets manufacturers producing components used in clean or alternative energy systems. Eligible items include thin-film photovoltaic cells, PV wafers, wind turbine components, battery project components, solar-grade polysilicon, solar modules, torque tubes, structural fasteners, and certain inverters.
RON WAINWRIGHT: The 45X production tax credit is available beginning in 2023 and applies to components sold through 2032, effectively a 10-year credit. The credit amounts vary by component: for example, a thin-film photovoltaic cell can generate four cents per watt, a PV wafer can generate $12 per square meter, some wind component credits are structured as a percentage such as 10 percent, and torque tubes can generate approximately 87 cents per kilogram.
RON WAINWRIGHT: The credit is significant for manufacturers of these eligible components who sell to unrelated parties after 2022.
HOST: You mentioned the advanced energy project credit as well. How does that interact with these other credits?
RON WAINWRIGHT: The advanced energy project credit is Section 48C in the Internal Revenue Code and is an investment tax credit. The Inflation Reduction Act revised and extended Section 48C, making it available to manufacturers of a wide range of renewable energy equipment and to facilities producing that equipment.
RON WAINWRIGHT: The IRA allocates $10 billion of 48C credits attributable to manufacturing facilities producing equipment used in clean energy. The base credit is 6 percent, and a manufacturer can earn a bonus multiplier up to 5x, commonly referred to as the bonus credit, for meeting certain criteria such as prevailing wage and apprenticeship requirements.
RON WAINWRIGHT: Guidance on these requirements has not yet been released and is unlikely until next year, so manufacturers should begin planning now for both the 45X production tax credit and the 48C advanced energy project credit.
HOST: In your assessment, what do the CHIPS Act and the Inflation Reduction Act of 2022 do for industrial manufacturing positioning in the U.S.?
RON WAINWRIGHT: Industrial manufacturing is poised for substantial growth. The broad definitions in the CHIPS Act and the Inflation Reduction Act, along with the availability of investment tax credits and production tax credits, will drive significant capital investment.
RON WAINWRIGHT: Over the next five years, we estimate close to $750 billion of capital could be deployed through tax credits, grants, guaranteed loans, and related provisions. The CHIPS Act focuses on semiconductor manufacturing, while the Inflation Reduction Act expands incentives for components used in clean and alternative energy.
RON WAINWRIGHT: Beyond 2024, the IRA establishes technology-neutral production tax credits and investment tax credits—referred to as the Clean Energy Production Credit and the Clean Energy Investment Tax Credit—which extend through 2032. Manufacturers should be prepared for complexity and planning opportunities through 2032.
HOST: We originally planned four podcasts, but there's clearly more to cover. We plan to publish three additional podcasts in this series. Can you preview podcast five on monetizing energy credits?
RON WAINWRIGHT: There are two primary credit monetization concepts under the Inflation Reduction Act. First, direct pay allows certain taxpayers to elect to receive direct payment of eligible tax credits from the federal government in specified circumstances.
RON WAINWRIGHT: Second, transferability allows a taxpayer to transfer all or part of a tax credit to an unrelated taxpayer in exchange for cash. This enables taxpayers who cannot fully utilize a credit to monetize it by selling it to an unrelated party.
RON WAINWRIGHT: Section 45X is structured as a direct pay credit. Transferability provisions are broader than Sections 45 and 48 and apply to various credits depending on the statute.
RON WAINWRIGHT: We will cover these monetization options in greater detail in podcast five.
HOST: Thank you, Ron. That wraps up today's discussion. To summarize the series direction, podcast five will be a deeper dive into credit monetization, podcast six will cover the Section 45Q credit for carbon oxide sequestration, and podcast seven will address the technology-neutral credits.
HOST: If you haven't listened to podcasts one, two, and three, they are available on cbh.com. They include an overview, funding mechanisms, and detailed discussion of the Advanced Manufacturing Investment Tax Credit.
HOST: Ron, thank you for joining us today. We look forward to podcasts five, six, and seven.
RON WAINWRIGHT: Thank you, Matt.
HOST: More to come. There is a lot of activity around the CHIPS Act and the Inflation Reduction Act credits and incentives that manufacturers and industrial clients can take advantage of. We stand ready to help and look forward to having you join us for the trailing series.
