New SEMI Act Defines What Counts as a 'Chip Factory' for Tax Credits: Clarity for US Manufacturing Investment

The Strengthening Essential Manufacturing and Industrial Investment Act—or the SEMI Investment Act—is all about refining the playbook for bringing high-tech manufacturing back home. This legislation doesn't create a new tax break, but it sharpens the definition of an “advanced manufacturing facility” eligible for a crucial investment tax credit under Section 48D(b)(3) of the Internal Revenue Code. Essentially, it clarifies exactly which manufacturing projects qualify for a big tax break, locking the focus squarely onto semiconductors, the equipment used to make them, and the specialized materials needed for their production.

The Fine Print on What Makes a Chip

For anyone looking to build a new factory, clarity on tax incentives is everything. This bill delivers that clarity by breaking down what qualifies as “semiconductor materials” into two precise buckets. The first, Direct Production Materials, are the things that actually end up inside the finished chip. Think of silicon wafers (substrates), the thin films that form the chip’s structure, or the ceramic packaging that houses it. If it’s physically built into the final product, it’s a direct material.

The second bucket is Indirect Production Materials. These are the highly specialized, often expensive, chemicals and tools used during the manufacturing process but aren't part of the final chip. This includes etchants, doping gases, photoresists for patterning, and specialized cleaning agents. The bill even covers things like the probe cards used for testing. This is a big deal because it means the tax credit isn't just for the big chipmakers; it’s for the entire supply chain, down to the specialized chemical companies and equipment suppliers.

Where the Treasury Steps In

Here’s the part that adds certainty—and a little bit of administrative power. The Secretary of the Treasury, working with the Secretary of Commerce, has to publish a definitive list of these qualifying materials within 180 days of the Act's enactment, and then update it every year. This means businesses won't have to guess whether their specialized product qualifies for the tax incentive; they can just check the list. If a material isn't on the list, a company can petition the Secretary for a determination, creating a formal process for clarification.

However, there’s a catch in the indirect materials definition that could cause headaches: the bill excludes any material that has a “generic use” and is “mostly used outside of semiconductor manufacturing.” This is where the IRS and manufacturers might butt heads. What exactly does “mostly used” mean? A company that makes a specialized solvent might argue it’s critical to chip production, while the IRS might argue that same solvent is also used widely in other industries. The Treasury's annual list will be crucial in settling these potential disputes, but until then, it leaves a little wiggle room for interpretation.

Real-World Impact: Certainty for Investment

For the average person, this bill doesn't directly change your taxes or your commute. Its impact is focused on industrial policy and the supply chain. By defining the rules of the game so precisely, the SEMI Act lowers the risk for companies planning to invest billions in new U.S. facilities. If you’re a CEO planning a multi-year, multi-billion-dollar chip fabrication plant, you need to know today that you will qualify for that tax credit in three years when the facility is put into service. This bill provides that certainty. The goal is to spur massive domestic investment, which ultimately supports high-paying manufacturing jobs and stabilizes the supply of critical components that power everything from your phone to your car.