Washington Gov. Jay Inslee signed a bill into law that extended tax preferences for the semiconductor industry in the state. House Bill 2428, sponsored by three Democrats, reinstated a total of eight tax preferences that were set to expire, with the aim of attracting federal funding under the CHIPS Act. The CHIPS and Science Act, passed in 2022, aims to infuse $52 billion into the domestic semiconductor industry to keep the U.S. competitive with other countries like China. Despite the CHIPS Act funding being authorized, Congress has been slow in appropriating the funds.
The tax preferences in Washington for the semiconductor industry include reduced business and occupation tax rates and exemptions from state sales and use tax for certain purchases related to semiconductor production. With the bill, these tax preferences have been extended until 2034, providing predictability in the business environment. While Washington is not able to invest directly in the semiconductor industry due to state constitutional restrictions, the tax relief dollars can serve as a form of matched funds required for CHIPS Act funding.
Washington is at a disadvantage compared to other states in attracting semiconductor industry investment due to restrictions on direct investments by the state government. States are required to demonstrate a local match to win CHIPS Act funds, and tax relief dollars can serve as a form of matched funds. States like Arizona and Indiana have been successful in attracting semiconductor companies by offering various incentives, including tax benefits and workforce development programs.
The reinstatement and extension of tax preferences in Washington are expected to support the existing semiconductor industry in the state, particularly in Clark County where major companies like TSMC Washington and SEH America are located. These tax preferences were contingent upon a significant investment from a semiconductor manufacturer, and the new bill reduces the investment threshold, making it more accessible for industry players in the region. In addition to tax incentives, research efforts by universities in the Pacific Northwest are also contributing to attracting CHIPS Act funding.
Researchers in Washington State University’s Vancouver campus are exploring innovative approaches to semiconductor technology, such as using organic matter like honey as a replacement for silicon in computers. These research initiatives, along with the tax preferences, aim to position Washington as an attractive destination for semiconductor industry investment and CHIPS Act funding. While the tax preferences are just one tool in the state’s toolkit to unlock federal funding, they play a critical role in supporting the semiconductor industry in Washington.
