August 26, 2025 Boosting Domestic R&D Amid the Latest Chip Tariffs

Businesses concerned about the effects of new chip tariffs on their bottom lines can find a powerful offset via the Section 41 R&D Credit.

By Chuck Wilson and Myron Moser

This year has been marked with uncertainty for high-tech manufacturers. Shifting trade agreements have created added variability on the supply chain side as well as the demand side, necessitating more on-the-fly decisions to maintain some level of P&L and operational consistency. In tandem, manufacturers are struggling to maintain R&D investment, which generates long-term returns in the hundreds or even thousands of percents, but can seem like a luxury in the short-term.

Amid these unknowns, one source of funding and stability has recently gained back its shine thanks to recent legislation – the Section 41 Research & Development (R&D) Tax Credit. For many in the high-tech space dealing with semiconductor tariff uncertainty, this incentive could be the difference between succeeding or falling to the wayside.

The Latest on the Trump Semiconductor Tariffs

As the situation currently stands, the Trump administration is aiming to ramp up tariffs on imported semiconductors (used in the production of integrated circuits, or chips) from an average of single digit percentages1 to a full 100%. The ultimate goal of these tariffs is to bring home as much of the semiconductor supply chain as possible, a shared goal of the prior administration, which passed the CHIPS and Science Act of 2022.

There is still considerable uncertainty regarding how the Trump chip tariffs will work. The escalation in rates cannot happen until a Section 232 investigation is completed, during which the Secretary of Commerce will determine if the current levels and sourcing of semiconductor imports are detrimental to national security. Moreover, not all “imported” semiconductor products are created equal: the proposed chip tariffs have carve-outs for suppliers with current or planned U.S. manufacturing operations.

Regardless, it’s clear that both the prior and current administrations are vested in ramping up America’s technological profile and capabilities. This push to maintain a consistent focus on innovation also includes a renewed focus on incentivizing R&D.

R&D Incentives Recharged

Up until the passage of the One Big Beautiful Bill Act, American businesses were forced to amortize their R&D expenses. In other words, they couldn’t fully deduct the expenses for the same year in which they were incurred – in fact, they could only deduct 10% in the first year. This created a wide disparity between net income on a standard accounting basis (which allowed full deduction of the expenses) and taxable income (made significantly higher due to fewer deductible expenses). The net effect of this treatment was that businesses were, in effect, penalized for their R&D efforts with surprise tax bills.

The legislation passed on July 4th eliminated this treatment for the 2025 tax year and forward. It even provided several possibilities for businesses to “catch up” on deductions they weren’t able to fully claim in 2022-2024. With the amortization issue fixed, American R&D incentives returned to their full strength. Now, companies conducting R&D are once again able to show a more realistic taxable income as well as lower their resulting tax bills. For eligible manufacturers, this entails potential refunds in the six- or seven-figure range, in perpetuity, for activities they’re doing on a day-to-day basis.

More granularly, manufacturers can now fully deduct payroll and contractor costs that went towards R&D efforts, as well as materials consumed during these development efforts. Expenditures related to developing new products, refining existing products, or developing production and testing processes all fall under this umbrella. The work doesn’t have to result in a patent or a world-changing discovery – as long as the information discovered is new to the company, the activities can qualify. Best of all, these expenses can also be claimed for the Section 41 R&D credit.

How Can Manufacturers Benefit?

The revitalized R&D landscape is now making it easier for domestic manufacturers to leverage technologies that reduce their direct costs, both on the labor and the material sides, as well as increase top-line revenue with higher performance and durability.

Traditionally, manufacturers have utilized the stimulus provided by the credit to research alternative designs, materials, and components; increase production throughput; and improve their testing processes. However, this is just the start of what’s possible, given the advanced technologies available to manufacturers.

Manufacturers researching how to expand automation can decrease the need for human workers to perform routine, manual work, whether it’s on the production floor or in the accounting office. Efforts to integrate artificial intelligence with production equipment give manufacturers the ability to predict when machinery needs to be serviced and provide real-time optimization of production schedules based on demand, required inputs, and delivery deadlines.

Robots are also starting to play a bigger part in manufacturing, given their growing ubiquity and cost-effectiveness. Manufacturers developing or integrating robots, whether they are collaborative (“cobots”) or fully independent, are reducing or even eliminating strenuous and dangerous tasks previously performed by human workers. Humanoid robots in particular are able to slot into current production systems previously manned by humans, with minimal operational disruption.

The net result when manufacturers leverage R&D incentives is that customers enjoy better products with lower costs and lead times, while human workers enjoy a safer work environment that allows them to focus on activities with higher value-add: analytics, strategy, testing, and design. It’s the future we’ve been working toward, and Uncle Sam will help pay for it with renewed stimulus for innovation.

What Are My Next Steps?

Given that the R&D credit is a permanent fixture in the tax code, manufacturers shouldn’t wait until tariffs are finalized and implemented to work it into their planning. The additional capital secured via the credit serves not only to smooth out pricing- and market-related ripples, regardless of their impetus – it can also ensure that domestic manufacturers are staying competitive on the world stage. With ever-increasing R&D investments on the part of international players competing for a bigger slice of the pie, manufacturers should view this incentive as a necessity.

About the Authors:

Chuck Wilson is Chairman of Technology at alliant and the Executive Director of the National Systems Contractors (NSCA) where he has served in this capacity since 1996.

Myron Moser is a Strategic Advisory Board Member of alliant and Chairman Emeritus of Hartfiel Automation where he worked as an executive since 1995, helping strengthen American manufacturing through innovative solutions.

Read more from the authors:

https://www.manufacturing.net/supply-chain/blog/22937559/the-tariff-remedy-manufacturers-arent-talking-about (Moser and Wilson)

https://industrytoday.com/innovation-will-fuel-manufacturing-rebirth-in-the-us/ (Jadav and Moser)

Footnote:

https://itif.org/publications/2025/05/21/short-circuited-how-semiconductor-tariffs-would-harm-the-us-economy

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