STAR Act of 2025
- Sponsor
- Rep. Moore, Blake D. [R-UT-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 28, 2025
Bottom line
The STAR Act of 2025 aims to boost domestic semiconductor design by offering a new 25% tax credit for related expenditures, complementing existing incentives for manufacturing.
What it actually does
This bill expands the existing advanced manufacturing investment credit (Section 48D of the Internal Revenue Code) to include qualified semiconductor design expenditures. It allows taxpayers to claim a credit equal to 25 percent of these design expenses, in addition to the existing credit for manufacturing facility investments. The bill defines what constitutes 'qualified semiconductor design' and specifies eligible in-house and contract design expenses conducted in the United States, while also setting an expiration date for the credit.
Proponents argue
Supporters argue that this bill is crucial for strengthening the domestic semiconductor supply chain by incentivizing not just manufacturing, but also the critical upstream design phase. They contend that fostering innovation and design capabilities within the United States will enhance national security, create high-paying jobs, and ensure American leadership in advanced technologies, making the U.S. more competitive globally.
Opponents contend
Critics might argue that expanding tax credits for specific industries could lead to significant revenue losses without guaranteed economic benefits, potentially distorting market forces. They may also contend that such credits disproportionately benefit large corporations capable of leveraging complex tax provisions, and that the definitions of 'qualified semiconductor design' could be broad enough to allow for activities not truly aligned with the bill's stated goals, leading to inefficient use of taxpayer funds.
The bill text is concise and can be read quickly, but understanding its full implications requires familiarity with existing tax code sections and semiconductor industry specifics.
Section 2(a)(1) and (3), amending Section 48D(a) and inserting new subsection (c)
Expansion of Advanced Manufacturing Investment Credit to Include Semiconductor Design
This provision expands the existing 25 percent advanced manufacturing investment credit to now also cover 25 percent of 'qualified semiconductor design expenditures.' This means that companies can receive a tax credit for costs associated with designing semiconductors, in addition to the credit they might receive for building or expanding semiconductor manufacturing facilities. The bill provides detailed definitions for what counts as 'qualified semiconductor design' and eligible expenses.
Supporters argue
Proponents argue that extending the credit to design expenditures is essential for a holistic approach to semiconductor supply chain resilience, ensuring that the U.S. leads in both manufacturing and the critical intellectual property development phase.
Critics contend
Opponents might argue that this expansion adds another layer of complexity to the tax code and could be an expensive subsidy, potentially benefiting companies that would have conducted these activities domestically anyway, or those that might not deliver significant long-term economic returns.
Tradeoffs
The provision balances the desire to stimulate domestic innovation and competitiveness in semiconductor design against the cost to federal revenue and the potential for market distortions or unintended beneficiaries.
Section 2(a)(3), inserting new subsection (c)(5)
Definition of Qualified Semiconductor Design
This section precisely defines what activities qualify for the new tax credit. It specifies that 'qualified semiconductor design' involves the development of product design, specifications, trade secrets, or other intellectual property for semiconductor manufacturing, where substantially all activities involve a process of experimentation for new or improved function, performance, reliability, or quality. It explicitly excludes activities related to style, taste, cosmetics, post-commercial production (with exceptions), duplication, or routine surveys/testing.
Section 2(a)(3), inserting new subsection (d)
Coordination with Research Expenditures Credit (Section 41)
This provision clarifies that any qualified semiconductor design expenditures for which a credit is claimed under this new Section 48D cannot also be used to claim a credit under Section 41 of the Internal Revenue Code, which covers increasing research expenditures. This prevents companies from receiving two federal tax credits for the same set of expenses.
The bill includes a special rule for startup ventures, treating them as meeting the 'trade or business' requirement for in-house semiconductor design expenses if their principal purpose is to use the design results in the active conduct of a future trade or business, either their own or that of an aggregated single taxpayer.
Section 2(a)(3), new subsection (c)(4)
Why it matters:This is standard legislative practice to include specific carve-outs or exceptions within the detailed definitional sections of tax law, as it applies to a particular circumstance (startups) rather than the general rule.
Case for: Supporters argue this provision is crucial for fostering innovation among new companies that may not yet have an active trade or business but are investing heavily in design, ensuring they can access the credit from their inception.
Case against: Critics might contend that this provision could open the door for speculative ventures or shell companies to claim credits, potentially leading to misuse of public funds if not rigorously overseen.
Estimated impact: Likely to encourage new semiconductor design startups, but the fiscal impact is difficult to estimate without knowing the volume of eligible startups and their expenditures.
The bill sets a termination date for the credit, stating it will not apply to property construction or qualified semiconductor design expenditures paid or incurred after December 31, 2036.
Section 2(a)(4), amending subsection (g)
Why it matters:This is a common legislative practice to place sunset clauses or termination dates at the end of the relevant section, ensuring the policy has a defined lifespan and can be reviewed or renewed in the future.
Case for: Proponents argue that a sunset clause encourages periodic review of the credit's effectiveness and fiscal impact, allowing Congress to adjust or renew it based on future economic conditions and policy goals.
Case against: Some might argue that a long-term investment like semiconductor design benefits from more stable, permanent incentives, and a termination date, even far in the future, can create uncertainty for long-term planning.
Estimated impact: Provides a clear timeframe for the credit's availability, influencing long-term investment decisions in the semiconductor industry.