Overview
Title
To amend the Internal Revenue Code of 1986 to add qualified semiconductor design expenditures to the advanced manufacturing investment credit.
ELI5 AI
H.R. 802 is like giving companies a prize for spending money to come up with new ideas for making computer chips in the U.S. They can get 25% back on their costs if they try out new designs up until the end of 2036.
Summary AI
The bill, H.R. 802, proposes an amendment to the Internal Revenue Code of 1986 to introduce a tax credit for qualified semiconductor design expenses. It allows eligible companies to receive a 25% tax credit on both their investments in advanced manufacturing facilities and semiconductor design expenditures within the U.S. The bill defines qualifying expenses as in-house or outsourced design costs, with certain limitations on what qualifies as semiconductor design. The amendment aims to incentivize innovation in semiconductor technology and is effective for expenses paid or incurred after the bill becomes law, terminating after December 31, 2036.
Published
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AnalysisAI
The proposed bill, H.R. 802, known as the "Semiconductor Technology Advancement and Research Act of 2025" or the "STAR Act of 2025," seeks to amend the Internal Revenue Code of 1986. Its primary aim is to expand the existing advanced manufacturing investment credit to include certain semiconductor design expenses. In essence, companies that incur specific costs related to designing semiconductors within the United States may qualify for a 25% tax credit. This includes costs for employee wages and supplies used in the design process, applicable to both in-house and contracted work.
General Summary
The bill identifies what qualifies as a "qualified semiconductor design expenditure" and establishes conditions under which these credits apply. Notably, the bill excludes expenditures related to style, cosmetic factors, duplication of existing designs, and purely commercial design activities after production begins unless related to firmware or software. A termination date for these benefits is set, barring expenses incurred after December 31, 2036.
Summary of Significant Issues
Several potential issues arise with the proposed legislation:
Broad Definition: The term "qualified semiconductor design expenditures" is broad, potentially allowing credits for expenses not directly linked to groundbreaking innovations, which might lead to misuse of the credits.
Ambiguity in Exclusions: The exclusion criteria for design purposes, such as style or taste, appear subjective, potentially leading to inconsistent application of the credit.
Complex Cross-Referencing: The bill heavily references other sections of the tax code, which can complicate understanding and compliance for companies unfamiliar with these specific tax provisions.
Coordination with Existing Research Credits: The coordination clause could lead to confusion about how these credits interplay with other research credits, increasing the risk of incorrect credit claims.
Subjectivity for Startups: The provision for startups has subjective language regarding the "principal purpose," which could create interpretational disputes and impact eligibility.
Impact on the Public
Broadly, the bill may encourage companies to invest more in semiconductor design and development within the United States, potentially boosting the local economy and technological advancement. By offering a tax incentive for qualified expenses, the legislation could lead to more innovation and competitiveness in the semiconductor sector, which is critical to many industries, including electronics, automotive, and telecommunications.
Impact on Specific Stakeholders
For the Technology Industry: The bill stands to benefit technology companies engaged in semiconductor design by offering substantial tax relief, which can be reinvested into research and development efforts. Companies might increase their design activities domestically to capitalize on the tax incentives, potentially leading to job creation in these sectors.
For Startups: While startups might find these credits attractive, the subjectivity regarding their principal purpose could mean some companies face challenges in proving their eligibility, potentially limiting the intended benefits for fledgling companies with legitimate designs.
For Tax Authorities: The complexity of the bill could present enforcement challenges, as accurately assessing eligible expenses will require significant oversight to ensure compliance.
In conclusion, while the STAR Act of 2025 offers incentives that could rejuvenate and bolster U.S.-based semiconductor design, its success will heavily depend on the clarity and precision in its enactment and enforcement, as well as the stakeholders’ ability to navigate its complexities.
Issues
The term 'qualified semiconductor design expenditures' in Section 2 may be too broad and potentially include expenses not directly related to innovative design efforts, leading to possible misuse or misallocation of credits.
The exclusion of certain design purposes, such as style or cosmetic factors, in Section 2 could be subjective and open to interpretation, which may create ambiguity and lead to inconsistent application of the credit.
The 'aggregation of expenditures' clause in Section 2, which uses rules similar to section 41(f)(1), could complicate understanding for those unfamiliar with the referenced section, potentially resulting in confusion or errors in claiming credits.
The coordination clause with credit for increasing research expenditures in Section 2 may cause confusion if not clearly understood, leading to improper claims of credits for semiconductor design expenditures.
The subjective assessment of 'principal purpose' for startup ventures in the 'trade or business' requirement in Section 2 could lead to differing interpretations and disputes regarding eligibility for credits.
The complex hierarchical structure and multiple nested subsections in Section 2 might render the section difficult for individuals without legal expertise to comprehend, raising accessibility issues for stakeholders.
Extensive use of cross-references to other sections in Section 2, such as section 41(b)(2)(C), may create confusion about specific meanings or requirements, potentially complicating compliance.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the bill establishes its short title, stating that it may be referred to as the “Semiconductor Technology Advancement and Research Act of 2025” or simply the “STAR Act of 2025”.
2. Qualified semiconductor design expenditures added to advanced manufacturing investment credit Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to include certain semiconductor design expenses as eligible for a 25% advanced manufacturing investment credit. It specifies what qualifies as semiconductor design expenses, including wages and supplies for both in-house and contract work, and outlines the conditions under which these credits apply, such as only covering expenses within the United States and excluding activities like style-oriented design or duplication of existing products. The section also sets a deadline for qualifying expenditures and coordinates these credits with other research expense credits.