Territorial Tax Equity and Economic Growth Act of 2025
Territorial Tax Equity and Economic Growth Act of 2025
Plain Language Summary
# Territorial Tax Equity and Economic Growth Act of 2025 - Plain Language Summary **What the bill would do:** This legislation would make it easier for people to qualify for a tax break available to residents of U.S. territories (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and Northern Mariana Islands). Currently, residents must spend at least 183 days per year in their territory to exclude certain income from U.S. federal taxes. The bill would lower this requirement to 122 days. It would also change which types of income count as "U.S.
income" (taxable to the federal government) versus "territory income" (potentially tax-exempt), making it easier for residents to qualify for tax benefits on more of their earnings. **Who it affects:** The bill primarily affects people living in or considering moving to U.S. territories, as well as businesses operating there. It could make these territories more attractive to investors and remote workers by reducing tax obligations. The bill could also impact federal tax revenue, though the extent depends on how many people take advantage of the new rules. **Current status:** The bill is currently in committee, meaning it has been introduced but hasn't yet been debated or voted on by the full House of Representatives. It was sponsored by Delegate Stacey Plaskett, a Democrat representing the U.S. Virgin Islands.
CRS Official Summary
Territorial Tax Equity and Economic Growth Act of 2025This 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 billreduces 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, andspecifies 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.
Latest Action
Referred to the House Committee on Ways and Means.