CST testimony to the Oregon Legislatures: Oregon should enact the R&D tax credit to encourage innovation at small- and mid-sized companies supporting chip-makers!

Just as a silicon chip cannot function without the tens, if not hundreds, of components around it, the circuit board beneath it, or the software stack that runs it – semiconductor companies, too, cannot exist in a vacuum and must rely on an entire technology ecosystem.

That’s why – in addition to supporting the Federal Government’s efforts to reinvest aggressively in American semiconductor companies (see my previous blog on the Chips and Science Act of 2022) offering substantial strategic incentives to U.S.-based chip makers like Intel, QualComm, Broadcom, and Micron – I am vigorously supporting enactment of a 2% R&D tax credit here in the state of Oregon.

This modest incentive, an investment in Oregon’s future, will go far toward encouraging innovation among the thousands of Oregon’s small- and mid-sized tech companies who enable and support silicon companies. (The ripple effect of that investment goes without saying.) It will also help ensure that tech jobs associated with the resulting innovation stay here in the U.S., just as the Federal “Chips Act” is intended to promote rebuilding state-side chip manufacturing infrastructure.

Happily, I was afforded an opportunity to elaborate on this perspective directly to Oregon legislators and the lawmakers on the Joint Semiconductor Committee in a public hearing held on Friday, May 5. Here’s a summary of my testimony:

“While acknowledging and applauding the significant steps Oregon has recently made in the semiconductor investment arena – i.e. the $210 million Oregon CHIPS Act that emerged from the forward-thinking work done by the Joint Committee on Semiconductors and signed into law by Governor Kotek in April — I encourage our legislators to now broaden their perspective and investment beyond silicon chip manufacturing to spur similar, much-needed investment, momentum, and growth among Oregon’s equally vital small- and mid-size technology manufacturers, software companies, and other service providers whose contribution enable innovation at the big chip companies.

More specifically, the R&D tax credit is critical for such companies, as we strive to keep pace with the innovation occurring at the large companies – as well as achieve breakthroughs of our own in materials science, manufacturing, quality assurance, and many other aspects of our businesses.

In fact, innovation in silicon cannot be achieved without innovation across the whole technology sector – which includes PCBAs, box assemblies, system design, testing, and development of the very software stacks critical at the heart of emerging technologies like quantum computing, AI, advances in cloud computing. My own company, Cascade Systems Technology, is one among many examples the committee can consider: At CST, we assemble circuit boards and full box assemblies for a customer here in Oregon that is deploying them in a fabrication facility for semiconductor companies. So, in this case, CST’s technology is in use on both sides of the semiconductor supply cycle – pre-production (through building solutions needed in silicon fabrication) and also in post- production (where we’re helping to make the silicon functional in an advanced and complex circuit board.

Finally, given current geo-political realities and the hard-earned supply-chain lessons of the pandemic, it’s now well understood that we must nurture that ecosystem in the US to continue to be a global superpower: The U.S. cannot be reliant on foreign entities to “assemble” all the parts to make those advanced semiconductors functional. And if those competencies are to return to America, as well they should, why should we not ensure Oregon leads the way? In my view, Oregon has a tremendous opportunity if we pull this together with a holistic approach and design a legislative effort with the entire semiconductor solution stack – and not just the chip – in mind.”

Of course and importantly, I am but one member in the chorus that’s encouraging adoption of the 2% R&D tax credit in our great state. Here’s Duncan Wyse, President of the Oregon Business Council (OBC), writing to Senator Janeen Sollman and Representative Janelle Bynum — both members of the Joint Committee on Semiconductors (JSEMI) — on the need for the credit:

“Oregon is one of only 12 states without an R&D Tax Credit, while nearly every state competing against us for investment has one. Expert and stakeholder testimony to JSEMI has made clear the importance of these programs and how they work. EcoNorthwest has produced data for the committee demonstrating that these types of investments, when used to generate recruitment or expansion of semiconductor and advanced manufacturing firms, produce net returns to the state very quickly. Furthermore, guidance from the Department of Commerce has made clear that states and localities must show clear incentives for firms in those locations to receive funding under CHIPS. The continued absence of these incentives will cast doubt on CHIPS Act applications seeking to invest in Oregon by putting local employers at a significant disadvantage compared to peers in other states.”

And here is my good friend and colleague Skip Newberry, CEO of the Technology Association of Oregon (TAO), recently touching on the topic at hand:

“I am optimistic about the progress we are making with legislation in strengthening economic incentives for sectors such as semiconductors and advanced manufacturing firms that are critical to Oregon’s economy. The Oregon Chips Act is one exceptional example. Having just spent a bunch of time in Eugene, another example is the investment that’s taking place on the Knight Campus at the University of Oregon. And I remain hopeful that our legislators will shortly be advancing and adopting the proposed R&D tax credit, which will accrue significant benefits to the hundreds of Oregon tech firms who surround and enable our chip-makers with value and innovation they need to excel.”  

Interested in joining me, Duncan, Skip, and others in our sector who are advocating for the R&D tax credit in Oregon?

I strongly urge you to write to your legislators in support of the notion or reach out to the advocacy teams at the OBC and/or TAO to avail yourself and get involved. Just as a 2% tax credit for R&D activities can have a huge ripple effect on the economy, outlook, and competitive stance of Oregon – and our nation, as a whole — adding your support and story can help turn the tide on this possible legislation… Raising ALL our boats in the process!

–  Shantanu R. Gupta,
President & CEO, Cascade Systems Technology

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