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Lawmakers debate tax title on innovation bill

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Tax Hot Topics newsletter Lawmakers in the conference committee for an innovation bill are discussing the possibility of adding tax provisions that would restore expensing of research and experimentation (R&E) costs and create a tax credit for semiconductors. The tax proposals enjoy significant bipartisan support, but numerous political headwinds complicate the outlook.

The underlying innovation bill is with a formal conference committee charged with merging the Senate-passed version of the United States Innovation and Competition Act (USICA), with the House-passed bill known as “America COMPETES.” Neither underlying bill currently carries a tax title, but that would not preclude the conference committee from adding one in conference.

There is strong bipartisan support for both restoring R&E expensing and incentives for semiconductor manufacturing. The Senate passed, by a 90-5 margin, a nonbinding motion to “instruct” lawmakers participating in the conference to include R&E expensing, and also approved a similar motion for semiconductor manufacturing by a voice vote. But there is also strong resistance to adding a tax title to an already contentious bill, as it could open up the process for other members to push various tax priorities. Many Democrats also appear reluctant to pass business tax relief while the enhanced child tax credit is stalled, and could push for “social” tax relief that would complicate the process.

In addition, there are also competing versions of legislation to encourage semi-conductor manufacturing. Both the USICA and America COMPETES bills contain the “Creating Helpful Incentives to Produce Semiconductors for America Act” (CHIPS Act), which provides incentives for domestic semiconductor manufacturing and investments in chip research. But some lawmakers also are pushing for conferees to add the “Facilitating American-Built Semiconductors Act” (FABS Act) to the ultimate legislation—which would establish a 25% tax credit towards the purchase, construction, manufacture, or utilization of a semiconductor manufacturing facility or related equipment used for the design or processing of chips. Other lawmakers are pushing conferees to add the “Supporting American Printed Circuit Boards Act,” which would provide tax incentives to manufacturers, researchers and buyers of printed circuit boards.

The timeline for completion of the conference committee and final passage of the updated legislation remains uncertain. Disagreements on potential additions and revisions to the underlying bills will likely take weeks—if not months—to resolve. If the Section 174 R&E fix is not included in the innovation legislation, it still has a good chance of being addressed in a year-end “extenders” bill after the November elections.

Businesses should seek to remain apprised of the ongoing conference committee and its underlying negotiations, as significant developments are expected in the near-term.

Contact:
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

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