[author: Matthew Harrison]
The semiconductor industry has exploded in Arizona over the last few years. Whether you're a startup looking to enter the supply chain or a longtime manufacturer hoping to expand your footprint, you’ve likely heard about the CHIPS and Science Act. Passed in 2022, this legislation injected billions into domestic semiconductor production, and much of that money is now being deployed across Arizona.
While the CHIPS Act presents real opportunities, it also creates serious legal obligations for manufacturers that want to participate. If your company is looking to benefit from these incentives (or already has), understanding the fine print is critical. At Harrison Law, PLLC, we help Arizona businesses navigate the legal and regulatory landscape so they can grow confidently and compliantly.
Here’s what Arizona manufacturers need to know in 2025.
What Is the CHIPS Act?
The CHIPS and Science Act was passed to strengthen U.S. competitiveness in semiconductor manufacturing. In Arizona, that means federal funds are flowing into companies building and expanding chip-making facilities, workforce programs, and supplier networks.
In April 2024, the U.S. Department of Commerce awarded up to $6.6 billion in grants to Taiwan Semiconductor Manufacturing Company (TSMC) to support its three fabrication plants in Phoenix, one of which is expected to start production by mid-2025. This isn’t just a win for TSMC. It's a significant opportunity for Arizona manufacturers that support semiconductor production from precision parts to cleanroom design and construction.
Opportunities for Arizona Businesses
Federal Grants and Contracts
While headline-grabbing amounts go to large companies, smaller and mid-sized manufacturers may be eligible for subcontracting opportunities, equipment procurement, and supply chain roles. These relationships can not only open new revenue streams, but also bring federal oversight and contract requirements that businesses must follow.
25% Tax Credit for Manufacturing Equipment
The CHIPS Act includes a 25% tax credit for companies that invest in semiconductor manufacturing. If you're purchasing or upgrading equipment to work in this space, you may be eligible. That said, claiming the credit requires documentation, eligibility confirmation, and compliance with IRS rules that are still being clarified.
Workforce Development Support
CHIPS-related projects in Arizona often involve workforce partnerships with schools, unions, and job training programs. Companies that engage in these efforts may receive additional funding or hiring support, but they also face accountability for results, diversity goals, and labor standards.
Obligations and Legal Risks
Mandatory Reporting and Compliance
If you receive CHIPS Act funding either directly or through a federal contractor, you must submit regular reports. These may include construction updates, financial milestones, workforce metrics, and community impact data.
Missing deadlines, misreporting information, or failing to meet agreed-upon targets can result in penalties, including repayment of funds. Companies that haven’t handled federal grants before should seek legal guidance to avoid unintentional missteps.
Restrictions on Foreign Operations
A key requirement in the CHIPS Act is known as the “guardrails” provision. If your company receives CHIPS funds, you cannot expand certain semiconductor operations in countries of concern - most notably, China - for at least 10 years. This applies even if your foreign operations are minimal or through a partner company.
Manufacturers with any international footprint should carefully review contracts, investment structures, and joint ventures to ensure compliance. Violations could trigger investigations, funding clawbacks, and reputational damage.
Labor and Environmental Standards
Many Arizona manufacturers are familiar with state and federal labor laws. However, CHIPS-funded projects are subject to enhanced standards, including prevailing wage rules, registered apprenticeship expectations, and environmental permitting requirements.
Businesses that don’t normally operate in the federal space should prepare for a higher level of scrutiny. Understanding how these requirements apply to your workforce and vendors is essential to stay eligible for ongoing work.
Common Legal Issues We See
- Misuse of Funds: Using CHIPS funding for unauthorized expenses or outside the project scope can lead to repayment demand
- Labor Disputes: If a company fails to meet labor standards or apprenticeship requirements, it may face audits or lose future contracts.
- Supply Chain Oversight: You may be held responsible for subcontractors or suppliers who violate CHIPS Act conditions, especially on projects involving federal dollars.
