State credit and incentive programs for semiconductor ancillary suppliers

As the U.S. semiconductor industry expands under the CHIPS and Science Act, states are racing to attract not only large chip manufacturers but also the ancillary suppliers that make these operations possible. Equipment makers, material providers, logistics firms, testing, and packaging companies all form an essential part of the semiconductor ecosystem, and many state incentive programs recognize this.

This article highlights the top ten U.S. states offering semiconductor-related incentives including supplier eligibility and outlines additional credit and incentive programs that ancillary suppliers should consider when evaluating expansion or relocation opportunities.

The expanding role of suppliers

A company does not need to manufacture semiconductor chips directly to qualify for many of the available incentives. States are increasingly understanding that suppliers providing materials, components, equipment, cleanroom technology, packaging and testing services are vital to strengthening the U.S. semiconductor supply chain.

Supplier-specific provisions are now included in several state laws and incentive packages, enabling ancillary companies to qualify for investment tax credits, job creation incentives and sales or property tax exemptions that were previously reserved for primary chip fabricators.

Top 10 states supporting semiconductor and supplier projects

1. Arizona

Through the Arizona Commerce Authority, suppliers involved in equipment, materials and advanced manufacturing processes are eligible for infrastructure support, job credits and manufacturing exemptions.

2. Texas

The Texas Semiconductor Innovation Fund (TSIF) supports both fabrication facilities and suppliers providing manufacturing equipment, raw materials or cleanroom components.

3. New York

The Green CHIPS Program offers credits for semiconductor and “related equipment and material supplier” sectors, including R&D and wage-based incentives.

4. Illinois

The Manufacturing Illinois Chips for Real Opportunity (MICRO) Act extends incentives to component and parts manufacturers, benefiting supply chain firms.

5. Ohio

Incentives include grant and tax support for suppliers investing in nearby manufacturing, assembly or logistics operations.

6. Colorado

Refundable tax credits for advanced manufacturing investments apply to semiconductor-related suppliers, tooling manufacturers and materials producers.

7. Pennsylvania

Manufacturing and research credits apply to semiconductor ecosystem participants, including materials, packaging and component producers.

8. Kansas

Kansas targets the broader semiconductor supply chain, offering job creation and investment incentives for suppliers supporting fabrication operations.

9. California

While operating costs are high, the state’s R&D credits and manufacturing exemptions benefit design, tooling and testing suppliers within semiconductor clusters.

10. Oregon

Oregon’s longstanding semiconductor manufacturing base and robust R&D tax credits make it attractive for suppliers in equipment, design and testing functions.

Incentives beyond semiconductor-specific programs

Even when a project doesn’t qualify directly under a semiconductor initiative, ancillary suppliers may access a range of state and local economic development incentives, including:

Investment and job creation tax credits

Most states provide income tax credits for new capital investment and job creation. Suppliers can qualify when they purchase manufacturing equipment, construct new facilities or hire additional workers.

Property tax abatements or PILOT agreements

Local jurisdictions often provide multi-year property tax abatements or payment-in-lieu-of-taxes (PILOT) agreements to help offset the costs of capital-intensive projects.

Sales and use tax exemptions

Manufacturers, including suppliers of semiconductor materials or equipment, can often claim sales tax exemptions for production machinery, construction materials and utilities used in manufacturing.

Workforce training and R&D incentives

States frequently provide training grants or reimbursements for upskilling employees in advanced manufacturing, as well as R&D tax credits for developing new processes or materials used in semiconductor production.

Infrastructure and site development grants

Suppliers investing near semiconductor hubs may receive infrastructure assistance, such as road improvements, site preparation or utilities to support cluster development.

Key takeaways for ancillary suppliers

• Eligibility: Many semiconductor programs explicitly include “component parts manufacturing,” “equipment/materials suppliers” and “advanced manufacturing supply chain” participants.
• Stacking benefits: Suppliers can often combine multiple incentives — such as investment credits, job creation credits and property tax abatements — to maximize savings.
• Timing: Engage early with state and local officials, as many programs require pre-approval before breaking ground or purchasing equipment.
• Proximity advantage: Locating near major fabrication or packaging facilities can enhance competitiveness for incentive awards.
• Documentation: Maintain thorough records — purchase orders, invoices, delivery documentation and payroll — to substantiate claims during compliance reviews.

While the spotlight often shines on large chip fabrication plants, the broader semiconductor supply chain is an equally critical component of U.S. manufacturing competitiveness. States recognize this, and many are extending their most generous credits and incentives to ancillary suppliers.

Companies providing materials, tools, packaging, testing, logistics or automation services should explore state-level semiconductor programs and complementary incentives that align with their operations and long-term growth strategy.