Territorial Tax Equity and Economic Growth Act of 2025
Summary
HB364, titled the Territorial Tax Equity and Economic Growth Act of 2025, would amend the Internal Revenue Code rules that determine who is treated as a bona fide resident of a U.S. possession and how income is sourced for tax purposes. The bill lowers the substantial-presence threshold for qualifying as a bona fide resident from the current standard to 122 days in a taxable year for residents of Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands, and it revises sourcing rules so that certain income connected to possessions is treated differently under federal tax law.
The measure also changes how income is classified when it is connected to business activity in the United States or in a possession. It narrows when income from U.S. activities counts as U.S.-source income for these purposes, adds new rules for determining whether income from outside a possession is effectively connected with a trade or business within that possession, and updates personal property sales sourcing rules to reference section 932. The amendments would apply to taxable years beginning after December 31, 2024.
Impact
If enacted, the bill would directly amend sections 937 and 865 of the Internal Revenue Code and alter federal tax treatment for individuals and businesses tied to U.S. territories and possessions. It would affect residency determinations, sourcing of income, and the tax consequences of cross-border business activity involving the possessions, potentially changing who owes tax where and how territorial economic activity is measured for federal tax purposes.
Sentiment
There is no recorded committee transcript or vote history in the provided material, so no formal debate or roll-call sentiment is available. Based on the bill text and title, the measure appears designed to support economic recovery and tax equity in the U.S. possessions, suggesting a pro-territorial economic development intent rather than a punitive tax change.
Contention
The main likely points of contention are the revised residency threshold and the reworking of source rules, because both can affect federal revenue, taxpayer eligibility, and the allocation of tax jurisdiction between the United States and the territories. Stakeholders in the possessions may support the bill as a growth and equity measure, while federal tax administrators or critics may question whether the changes create complexity, planning opportunities, or revenue loss. No specific opposing members or groups are identified in the available record.