Colorado looking to offer incentives to grow semiconductor industry locally

Colorado state Sens. Kevin Priola and Mark Baisley explain to the Senate their bill to offer incentives to companies in the semiconductor-manufacturing industry.

Hoping to grow businesses in the semiconductor and advanced-manufacturing industries, the Colorado Office of Economic Development and International Trade wants to replicate its popular enterprise-zone program with tax-enhanced zones specifically for those sectors.

A bill moving easily through the Colorado Legislature in the final days of its session would create new tax incentives targeted at those industries. The effort comes as the federal government prepares to dole out $280 billion to these sectors over the next five years as part of the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act.

To be sure, Colorado is not in the running for the multi-billion-dollar semiconductor manufacturing plants that states like Ohio and Arizona have begun to lay the groundwork for, but OEDIT officials believe companies supplying the semiconductor industry can benefit. And House Bill 1260 sets aside $75 million over the next five years as incentives to attract those companies and expand those firms with a presence already here, believing that money can leverage even larger sums coming from Washington D.C.

Part of a national push

“We wanted there to be cash available so that we could compete with other cities,” Jeff Kraft, OEDIT director of business funding and incentives, told The Sum & Substance, adding in an interview that he thinks Colorado could attract several billion dollars’ worth of investments. “We think this could ramp up over time and could be used for semiconductor supply-chain and other advanced manufacturing.”

The issue of bringing semiconductor manufacturing back to America has become an increasingly urgent one as China has grown more aggressive toward Taiwan, which makes more than 60% of the world’s semiconductors. The CHIPS and Science Act represents an attempt to offer major government aid to companies to build capital-intensive production factories in the U.S. and to offer smaller but still significant amounts of tax breaks to firms that produce the materials needed for semiconductor manufacturing.

Colorado has several hubs of such manufacturing now, particularly in Colorado Springs and Loveland, though Grand Junction is making a push to attract smaller supply-chain firms and companies that sell equipment to semiconductor fabrication plants as well, Kraft said. The $15 million in annual incentives in HB 1260 could, in combination with federal aid, help emerging local companies to expand and may be enough to attract smaller facilities of international companies that fear the geopolitical risk of staying in Taiwan may be too high.

A twist on existing tax breaks

Colorado state Sen. Kevin Priola explains House Bill 1260 on Friday to the Senate Appropriations Committee.

The proposed state incentives replicate three frequently claimed enterprise-zone incentives: An investment tax credit equivalent to 3% of new spending, an $1,100 tax credit for each new employee hired and a tax credit equal to 3% of annual research and development spending. However, under HB 1260, local governments can create a “CHIPS Zone” in which companies can locate to create those credits without requiring that the zone be in an area of economic under-development, as is needed to create an enterprise zone.

Rather than require tax-credit recipients subtract the tax credits from their tax liability, the proposal allows them to be taken as refundable tax credits that can be submitted to the Colorado Department of Revenue for repayment at 80% of their value. Many capital-intensive companies that make large investments in manufacturing plants can go a decade or more without accruing a tax liability, so the refundable nature of the tax credits will be more attractive to them, Kraft noted.

Also, the bill dispenses with the typical requirement that a state tax-credit recipient pay salaries equivalent to 100% of the average annual wage of the county in which they live and bumps that floor qualification pay level down to 75% of the local average annual wage. The reason behind that decision, Kraft said, was that average annual wages have soared with the elimination of so many lower-paying service-industry jobs since the start of the pandemic, leaving it difficult for some factories that still could boost the economy to reach that bar.

Boosting semiconductor businesses

Business groups largely have supported the effort, particularly as it comes in conjunction with a pair of bills that seek to help fund the education and credentialing of students going into fields with high needs for workers.

“This is a step in a positive direction,” Colorado Chamber of Commerce Senior Vice President of Governmental Relations Meghan Dollar told the chamber’s tax council last month. “There is a lot of incentives in there in hopes of bringing those types of businesses to Colorado.”

It’s not Colorado’s first investment in this area. In 2020, as the federal government indicated it would make greater investments in semiconductor manufacturing, the Colorado Economic Development Commission set aside $1.5 million to use as matching funds for federal grants on which the state would bid.

Legislative support for semiconductors

And the bipartisan effort has received bipartisan support, passing the House by an overwhelming 54-9 vote on Wednesday and then receiving final Senate approval this morning by a tally of 33-1. The House still must concur on minor amendments made in the Senate, but that isn’t expected to be a problem.

HB 1260 largely has flown under the radar amidst several major policy battles at the end of the session over topics ranging from affordable housing to air-quality permitting reform.

Colorado state Sen. Mark Baisley discusses his bill to offer incentives for semiconductor makers.

But co-sponsoring Sen. Mark Baisley, R-Woodland Park, has boasted that the bill represents “a relatively small investment for an enormous potential return,” which could spread as well into the area of quantum computing.

And his Democratic partner on the bill, Sen. Kevin Priola of Henderson, said the benefits of boosting semiconductor manufacturing in Colorado reach into several areas.

“This bill is not only for national security but also economic development in the state of Colorado,” Priola said Saturday.