The bill amends Internal Revenue Code section 48D to treat facilities that manufacture semiconductor materials as qualifying "advanced manufacturing facilities" for the advanced manufacturing investment credit. It creates statutory definitions for two categories—"direct production materials" (materials physically incorporated into a finished semiconductor) and "indirect production materials" (specialized inputs used in production, testing, inspection, or packaging but not incorporated into the finished product).
Practically, the measure extends the existing tax incentive beyond chips and chip equipment to the raw and process materials that underpin semiconductor manufacturing. The Secretary of the Treasury, in consultation with the Secretary of Commerce, must publish a specification list within 180 days and update it annually; taxpayers may petition for determinations on materials not yet listed.
The expansion applies to property placed in service after enactment, shifting potential tax benefits to fabs, materials makers, and their suppliers while creating new administrative responsibilities for agencies and claimants.
At a Glance
What It Does
The bill amends IRC §48D(b)(3) so that an "advanced manufacturing facility" includes facilities that manufacture semiconductor materials and then defines which materials qualify as direct or indirect production materials. It tasks Treasury (with Commerce) to publish a qualifying-materials list within 180 days and allows taxpayer petitions for unlisted items.
Who It Affects
Integrated circuit fabs, companies that make substrates, thin films, packaging substrates, bonding/interconnect materials, specialty chemicals, and firms that supply lithography, cleaning, inspection, and handling consumables. Tax advisors, compliance teams, and Treasury/Commerce staff will also be directly involved.
Why It Matters
By making materials eligible for the investment credit, the bill lowers the effective cost of building and equipping domestic input production for semiconductors—an explicit supply-chain policy lever that shifts subsidy focus from equipment and final chips to the upstream materials ecosystem.
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What This Bill Actually Does
At its core, the bill extends an existing federal investment tax incentive to a new set of industrial inputs. Rather than limiting the advanced manufacturing credit to facilities that build chips or chipmaking equipment, the text adds facilities that manufacture "semiconductor materials".
The statute then supplies operational definitions so Treasury can distinguish between materials that are part of the finished semiconductor and specialized consumables and components used during production and testing.
The law separates "direct production materials"—things physically incorporated into finished semiconductors, such as silicon substrates, deposited thin films, and packaging substrate materials—from "indirect production materials"—specialized chemicals, photoresists, cleaning slurries, probe cards, and wafer-handling components that support fabrication without becoming part of the finished die. The indirect-materials definition explicitly excludes materials with broad, generic uses that are predominantly deployed outside semiconductor manufacturing; that exclusion is a gatekeeper against overly broad claims.To make the definitions administrable, the bill requires the Secretary of the Treasury, after consulting Commerce, to publish a list within 180 days that specifies which materials qualify under each category and to update it at least annually.
If a taxpayer wants to claim the credit for a material not on the list, they can file a petition in the form and timetable Treasury prescribes. The practical result is that claiming the credit will depend on both the statutory text and an evolving administrative list, with the petition process serving as a formal route to resolve edge cases.The statute applies to property placed in service after enactment, so projects already concluded before the law’s effective date won’t retroactively qualify.
That timing pushes the economic effect toward new fabrication and materials projects planned or executed after the law becomes effective. It also creates a compliance chore: taxpayers will need documentation tying capital expenditures to qualifying facilities and qualifying materials and may need to engage with Treasury if materials they use aren’t on the published list.
The Five Things You Need to Know
The bill amends IRC §48D(b)(3) to include facilities that manufacture "semiconductor materials" as qualifying advanced manufacturing facilities.
It creates two statutory categories: "direct production materials" (physically incorporated into finished semiconductors, e.g.
substrates, thin films, packaging substrates, bonding/interconnect materials) and "indirect production materials" (specialized process, lithography, cleaning, inspection, handling, and packaging inputs).
The Secretary of the Treasury, in consultation with the Secretary of Commerce, must publish a list of qualifying materials within 180 days of enactment and update that list annually.
Taxpayers can petition Treasury for an interim determination on whether an unlisted material qualifies; Treasury will prescribe form, timing, and procedures for those petitions.
The expansion applies only to property placed in service after the date of enactment, so newly built or retooled facilities and new qualifying equipment/material investments are the primary beneficiaries.
Section-by-Section Breakdown
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Short title
Gives the act the name "Strengthening Essential Manufacturing and Industrial Investment Act" or the "SEMI Investment Act." This is a formal label with no substantive effect but sets the bill's policy framing toward semiconductor supply-chain strengthening.
Expand "advanced manufacturing facility" definition to include semiconductor materials
Rewrites paragraph (3) of IRC §48D(b) so a facility qualifies if its primary purpose is manufacturing semiconductors, semiconductor manufacturing equipment, or semiconductor materials. The practical consequence is that capital investment in plants that produce qualifying materials can now generate the same investment-credit treatment available to chip fabs and equipment builders, subject to the other rules in §48D.
Direct production materials—what is physically incorporated
Defines direct production materials narrowly: they must be primarily used for and integral to semiconductor production and physically incorporated into the finished semiconductor. The bill lists concrete examples—substrates (silicon, SiC, GaN, GaAs, InP), deposited metals/dielectrics/dopants, packaging substrate materials, and bonding/interconnect/adhesive materials—so taxpayers and auditors have clear anchors for eligibility determinations.
Indirect production materials, exclusions, and administrative list
Sets out a non-exhaustive list of indirect materials—process chemicals, photoresists and ancillary lithography items, CMP consumables, testing and inspection materials, packaging-process materials, fluid/gas/wafer handling components, and process-chamber materials—and directs Treasury (with Commerce) to publish specifications and applications within 180 days and annually thereafter. The provision excludes materials with generic uses that are predominately used outside semiconductor manufacturing, and it creates a taxpayer petition mechanism for materials not yet on the list. This balances an administrable catalog with a formal pathway for edge cases.
Effective date — property placed in service after enactment
Clarifies that the amendment only applies to property placed in service after enactment. That limits the credit's reach to future investments, meaning projects that have already completed construction or placed qualifying property in service prior to enactment cannot claim the expanded treatment retroactively.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Domestic semiconductor materials manufacturers: Producers of substrates, specialty chemicals, thin films, packaging substrates, bonding materials, and chamber components will see lower after‑tax costs for new plant and equipment, directly improving project economics for new or expanded fabs and materials plants.
- Integrated device manufacturers and foundries: Lower upstream input costs for qualifying materials can reduce capital and operating costs for fabs that procure domestically made materials and may accelerate vertical integration or local sourcing strategies.
- Materials suppliers and equipment OEMs: Suppliers of lithography consumables, CMP products, cleaning agents, and packaging materials gain demand-side stimulus as purchasers pursue qualifying domestic inputs and new facilities expand production.
- Tax advisors, engineering and construction firms: These providers benefit from new business advising on eligibility, documentation, and structuring capital projects to maximize credit capture.
- Regional economic development entities and investors: Municipalities and private capital backing new materials plants will find improved investment returns and project feasibility when the credit lowers required subsidies or financing hurdles.
Who Bears the Cost
- U.S. Treasury (federal budget): The expansion reduces federal revenue by enlarging the base of qualifying investments; absent offsetting revenue measures, this increases the cost of the investment-credit program.
- Small materials suppliers and foreign suppliers: Suppliers with dual-use, generic products must substantiate that their outputs are predominantly used in semiconductor manufacturing to qualify—creating documentation and compliance costs that fall disproportionately on smaller firms.
- IRS and Department of Commerce: Treasury must draft and maintain the annual materials list and adjudicate petitions, while Commerce will consult on technical specifications—both agencies face increased administrative workload and potentially contested determinations.
- Taxpayers claiming the credit: Companies will bear compliance costs to map capital investments to qualifying categories, assemble technical documentation, and, where necessary, pursue the petition process to secure determinations for borderline inputs.
Key Issues
The Core Tension
The central dilemma is between targeted industrial stimulus and administrative and fiscal realism: widening the credit to materials can strengthen domestic semiconductor supply chains, but doing so requires detailed technical definitions and ongoing agency rulemaking that invite disputes, compliance costs, and increased federal expenditures—with no built-in guarantee that the subsidy will translate into onshore production rather than cheaper imported inputs.
The bill aims for precision—listing substrates, thin films, packaging substrates, and a wide range of process consumables—but that precision still relies on technical judgments. The statutory examples help, but many semiconductor inputs are complex, proprietary, or dual‑use; determining whether a material is "primarily used for, and integral to, the production of a semiconductor" will require technical evidence and may vary by process node or application.
The annual Treasury list plus a petition route mitigates static definitions, but it also puts taxpayers at the mercy of administrative timelines and potential backlogs.
Another tension is the exclusion for materials with "generic use" predominately outside semiconductor manufacturing. That clause is conceptually sensible but operationally ambiguous: how will Treasury measure predominance?
Will it require percent‑of‑sales data, use studies, or attestation? Those evidentiary standards will determine whether smaller suppliers can practically qualify inputs.
Finally, the bill expands a targeted industrial subsidy without domestic-content or labor standards—so it subsidizes inputs wherever produced, raising questions about whether the policy effectively encourages reshoring of materials production or simply reduces costs for imported inputs used in U.S. facilities.
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