Territorial Tax Equity and Economic Growth Act of 2025
Sponsored By: Representative Del. Plaskett, Stacey E. [D-VI-At Large]
Introduced
Summary
Tightens residency and income-source rules for U.S. possessions to shift which people and activities are taxed in territories rather than the U.S. mainland. It targets tax residency and the rules that decide when income is U.S. source or effectively connected for Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.
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- Residents in those possessions see the "bona fide resident" test changed by tying the substantial presence test to section 7701(b)(3)(A) and swapping 31 days for 122 days, which changes who qualifies as a possession resident for tax purposes.
- Businesses and their income face new sourcing tests. Income must be attributable to an office or fixed place of business in the United States under section 864(c)(5). The bill uses section 864(c)(2) to decide if income from outside a possession is effectively connected to a trade or business inside that possession. It also says U.S. activities that are preparatory or auxiliary are not U.S. source nor effectively connected with U.S. business.
- The rules for sourcing sales of personal property are adjusted by adding a cross-reference to section 932 in section 865(j)(3). The changes apply to taxable years beginning after December 31, 2024.
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Bill Overview
Analyzed Economic Effects
3 provisions identified: 2 benefits, 0 costs, 1 mixed.
122-day residency test for territories
If enacted, you would meet the bona fide resident test if you spend at least 122 days in the year in Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands. This uses a clear days-based rule and would apply for taxable years beginning after December 31, 2024. Being a bona fide resident could change your U.S. tax residency and filing.
New source rules for territory income
If enacted, income from outside your territory would be treated as tied to your territory business only when it is connected to your active trade or business there. Income would be U.S.-source only if it is attributable to a U.S. office or fixed place of business. U.S. activities that are only preparatory or auxiliary would not count as U.S.-source or as effectively connected. These rules would apply for taxable years beginning after December 31, 2024.
Personal property sales source rules change
If enacted, the tax code would add a cross-reference that includes section 932 in the rules for where income from sales of personal property is sourced. This could change whether some sales are treated as U.S.-source or territory-source for businesses that sell goods. The change would apply for taxable years beginning after December 31, 2024.
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Sponsors & CoSponsors
Sponsor
Del. Plaskett, Stacey E. [D-VI-At Large]
VI • D
Cosponsors
There are no cosponsors for this bill.
Roll Call Votes
No roll call votes available for this bill.
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