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This bill would change certain federal tax rules for U.S. territories and possessions. Its main goal is to make the tax system work better for businesses and people in those places by adjusting how income is counted and where it is considered to come from. In simple terms, it would update parts of the tax code that deal with people and businesses in U.S. possessions so the rules are more consistent and may support economic recovery there.
- It changes how some income is treated when it is connected to a U.S. possession, limiting the rule so it applies only when the income comes from a business office or fixed place of business in the United States.
- It also updates the rules for sales of personal property, tying them to another part of the tax code that deals with people in U.S. territories.
- The changes would start with tax years beginning after December 31, 2024.
Official Summaries
Territorial Tax Equity Parity Act of 2025
This bill modifies the income sourcing rules related to taxation of income from U.S. territories.
Under the bill, 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. (Currently, income is sourced to a U.S. territory and, thus, may be excluded from the gross income of a bona fide resident of a U.S. territory in calculating U.S. federal income tax if it is not U.S.-sourced income or effectively connected with a U.S. trade or business.)
Further, the bill authorizes the Internal Revenue Service (IRS) to limit the income tax payment to the Virgin Islands required to treat income from the sale of certain personal property as foreign-sourced income for federal tax purposes. (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.)
Current Full Text
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 365 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 365
To amend the Internal Revenue Code of 1986 to modify the residence and
source rules to provide for economic recovery in the possessions of the
United States.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 13, 2025
Ms. Plaskett introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to modify the residence and
source rules to provide for economic recovery in the possessions of the
United States.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Territorial Tax Parity Act of
2025''.
SEC. 2. MODIFICATION TO SOURCE RULES INVOLVING POSSESSIONS.
(a) In General.--Section 937(b)(2) of the Internal Revenue Code of
1986 is amended by inserting ``, but only to the extent such income is
attributable to an office or fixed place of business within the United
States (determined under the rules of section 864(c)(5))'' before the
period at the end.
(b) Source Rules for Personal Property Sales.--Section 865(j)(3) of
such Code is amended by inserting ``, 932,'' after ``931''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2024.
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