The Oregon Legislature passed House Bill (HB) 2009 on June 24, 2023, which in part creates a refundable income and corporate excise tax credit for qualified semiconductor companies conducting qualified research activities. Governor Tina Kotek signed the bill on July 18, 2023.
This semiconductor R&D credit comes on the heels of the Oregon Legislature passing its own CHIPS Act, which was designed to boost the state’s semiconductor industry by:
- Leveraging federal investments
- Readying land for industrial development
- Helping public universities leverage federal research grants
Oregon previously had a broader R&D credit which expired for tax years starting after 2017. Both the prior Oregon R&D credit and the new one adopt federal R&D credit provisions, with a few modifications. You can watch a quick video summary of the federal R&D credit on our website.
Other proposed bills would have reinstated the prior credit or allowed the credit to be claimed broadly by advanced manufacturers, but ultimately the credit was limited to semiconductor companies due to budget considerations. There’s a possibility the credit will be expanded in future legislative sessions.
What’s Different About the Oregon Semiconductor R&D Credit?
The semiconductor R&D credit differs from federal R&D credit and the old Oregon R&D credit in several ways.
- The credit applies to tax years beginning on or after January 1, 2024, and before January 1, 2030.
- It’s limited to qualified semiconductor companies conducting qualified research and basic research in Oregon in support of a trade or business directly related to semiconductors.
- The applicable percentage used to calculate the credit is 15%, up from 5% on the prior credit. This 15% credit rate is among the highest in the country.
- Both corporate and pass-through entity taxpayers may claim the credit, so it can be used to offset personal and corporate income taxes. The prior Oregon R&D credit was limited to corporations.
- The amount of the credit per taxpayer is limited to $4 million, and statewide aggregate limitations apply. The prior credit was limited to $1 million per taxpayer.
- It’s partly refundable, with the refundable portion able to offset the corporate minimum tax and any excess amount still eligible for refund.
- The Alternative Simplified Credit method of calculating the federal R&D credit may not be used.
- The new credit doesn’t allow the prior Oregon alternative calculation based on Oregon sales under ORS 317.154.
- Taxpayers must register as qualified semiconductor companies and pre-apply for the credit annually.
What Is a Qualified Semiconductor Company?
A qualified semiconductor company includes entities whose primary business is either:
- The research, design, development, fabrication, assembly, testing, packaging, or validation of semiconductors
- The creation of semiconductor manufacturing equipment, semiconductor core intellectual property, or electronic design automation software primarily intended for use in the semiconductor industry
How Does a Taxpayer Become a Qualified Semiconductor Company?
Taxpayers must apply to the Oregon Business Development Department, also known as Business Oregon, annually to be certified as a qualified semiconductor company and pay a related fee.
The application must include a description of how the taxpayer meets the definition of a qualified semiconductor company as well as how proposed research and development will support the taxpayer in conducting a business or trade directly related to semiconductors. The form, manner, and fees related to this application are to be developed by Business Oregon.
What Are the Limitations of Claiming the Credit?
The credit is limited to $4 million for any taxpayer. The total amount of tax credits for all qualified semiconductor companies may not exceed:
- $35 million for the biennium beginning July 1, 2023
- $80 million for the biennium beginning July 1, 2025
- $90 million for the biennium beginning July 1, 2027
- $50 million for the fiscal year beginning July 1, 2029
Expenses or payments otherwise deductible are reduced by the amount of the credit claimed.
The semiconductor R&D credit may be carried forward for five years.
What Amount of the Credit Is Refundable?
The semiconductor R&D credit is refundable for qualified semiconductor companies with less than 3,000 Oregon employees. The amount that can be refunded depends on the number of Oregon employees, with smaller companies eligible for larger refund percentages.
The refund is applied when the sum of the semiconductor R&D credit, estimated payments, prepayments, and other refundable credits exceed a taxpayer’s tax liability after application of nonrefundable credits. Amounts ineligible for refund may be carried forward for five years.
The refundable portion of a credit may also be used to offset the corporate minimum tax, with any excess amount still eligible to be refunded.
Is There an Application Process to Claim the Credit?
Taxpayers intending to claim the credit for 2024 must register with Business Oregon by December 1, 2023. Business Oregon will provide preliminary confirmations of credits by December 31, 2023.
The registration form or process hasn’t been issued yet, but the law would require taxpayers to include documentation of their qualified research expenses and basic research expenses averaged over the three preceding calendar years and a projection of 2024 qualified research expenses and basic research expenses.
Oregon’s new R&D credit is limited to semiconductor companies but is related to the federal credit, which makes it important for companies to develop a customized project plan to identify, calculate, and support R&D credits and activities for both state and federal income tax purposes.
We’re Here to Help
Contact a Moss Adams professional to discuss increasing your federal and state R&D credits, as well as whether you qualify for this new Oregon credit.