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Territorial Tax Equity and Economic Growth Act of 2025
2/8/2025, 5:53 AM
Summary of Bill HR 364
The bill seeks to address the unique challenges faced by US territories and possessions, such as Puerto Rico, Guam, the US Virgin Islands, and American Samoa, by creating incentives for businesses and individuals to invest and operate in these regions. By modifying the residence and source rules, the bill aims to encourage economic development and job creation in these areas.
Overall, the Economic Recovery in US Possessions Act is designed to support the economic recovery and growth of US territories and possessions by providing tax incentives and benefits to businesses and individuals operating in these regions. The bill aims to create a more favorable environment for investment and economic activity in order to stimulate growth and prosperity in these areas.
Congressional Summary of HR 364
Territorial Tax Equity and Economic Growth Act of 2025
This bill lowers the residency requirements and modifies the income sourcing rules related to taxation of income from U.S. territories.
Currently, bona fide residents of a U.S. territory may exclude income sourced to the territory in calculating U.S. federal income tax. A bona fide resident of a territory is a person that, in part, is present in the territory for at least 183 days in a tax year. Income is sourced to a U.S. territory if it is not U.S.-sourced income or effectively connected with a U.S. trade or business.
This bill
- reduces the presence requirement to 122 days,
- specifies that income is U.S.-sourced income or effectively connected to a U.S. trade or business only if attributable to an office or fixed place of business in the United States, and
- specifies that income from U.S.-based activities that are preparatory or auxiliary may not be considered U.S.-sourced income.
Currently, income from certain personal property sales from a fixed place of business in a U.S. territory by a U.S. resident may be U.S.-sourced income unless an income tax of at least 10% is paid to the U.S. territory. The Internal Revenue Service (IRS) may limit the 10% tax payment requirement related to income from personal property sales in Guam, American Samoa, the Northern Mariana Islands, and Puerto Rico. This bill expands the IRS’s authority to include limiting the tax requirement for personal property sales in the Virgin Islands.
