Semiconductor Tax Credit Extended to 2031: New Law Expands Incentives for Chip Material Makers

The newly proposed Strengthening Essential Manufacturing and Industrial Investment Act (SEMI Investment Act) is all about doubling down on domestic chip production. If you thought the government was serious about bringing manufacturing back home, this bill confirms it by widening the scope and extending the timeline for a crucial tax break.

This legislation amends the Internal Revenue Code (Section 48D) to make two major moves: it significantly broadens who qualifies for the advanced manufacturing investment credit, and it extends the credit’s availability by five years, pushing the deadline from December 31, 2026, to December 31, 2031. Essentially, this is a massive, long-term signal to the semiconductor industry: build it here, and we’ll help pay for it.

The Chip Supply Chain Gets a Tax Break

Previously, the investment credit focused heavily on the final product—the semiconductor facilities themselves. This bill recognizes that a chip is only as good as the stuff that goes into it. The SEMI Act expands the definition of an “advanced manufacturing facility” to explicitly include those that produce semiconductor manufacturing equipment and, critically, semiconductor materials.

This is where the bill gets detailed, and frankly, a bit wonky, but it matters to everyone who uses a phone or drives a car. The bill meticulously defines what counts as a semiconductor material, splitting them into two groups:

1. Direct Production Material: This includes materials physically incorporated into the finished chip, like the silicon substrate (the wafer) or the thin films and metals that form the electrical structure. Think of this as the ingredients list for the chip.
2. Indirect Production Material: This covers specialized materials essential for the manufacturing process but not physically incorporated into the chip. This includes things like the specialized chemicals (etchants, gases), photoresists used to print the circuits, and even the specialized tubing and cleaning agents used in the fabrication process. Think of this as the specialized tools and cleaning supplies needed to run a sterile, high-tech kitchen.

By including these material makers, the government is incentivizing the entire supply chain—from the specialized chemical plant to the factory that makes the testing equipment—to set up shop in the U.S. This is a clear move to reduce reliance on foreign sources for these crucial components, which has been a major supply chain headache.

Long-Term Certainty, Complex Start Dates

For companies planning massive, multi-year construction projects, certainty is everything. Extending the credit period until the end of 2031 provides that runway. However, watch out for the fine print: the extension only applies to property for which construction begins after December 31, 2026. This creates a staggered system where the current rules run until 2026, and the new, extended rules kick in for projects starting after that date. It’s the kind of transition rule that makes tax lawyers earn their money.

To keep things clear for everyone, the bill mandates that the Treasury Secretary, in consultation with the Secretary of Commerce, must publish an annual list detailing exactly which materials qualify as direct or indirect production materials. This is a necessary step, as the bill explicitly excludes any material that has a “generic use” and is predominantly used outside of semiconductor manufacturing. If a material isn't on the list, a company can petition the Secretary for a determination. This authority to define what is and isn't a specialized material is where things could get subjective, but the requirement for an annual public list provides needed transparency for manufacturers making investment decisions.