Territorial Tax Parity Act of 2025
The Territorial Tax Parity Act of 2025 seeks to adjust how income sourced from U.S. possessions (such as Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) is determined for federal tax purposes. Specifically, the bill tightens the source rules so that certain income is viewed as arising from U.S. sources only if it is attributable to a U.S. office or fixed place of business, and it expands the rules for sourcing gains from the sale of personal property to include an additional provision (section 932). These changes are intended to support economic recovery in the possessions by clarifying and potentially aligning how income is taxed between the possessions and the rest of the United States. The changes apply to taxable years beginning after December 31, 2024.
Key Points
- 1Section 2(a): The source rule in 937(b)(2) is amended to say income is treated as U.S.-source only to the extent it is attributable to an office or fixed place of business within the United States, as determined under section 864(c)(5).
- 2Section 2(b): The sourcing rules for sales of personal property (under 865(j)(3)) are amended by adding reference to section 932, expanding the framework for how such income is sourced when involving possessions.
- 3Section 2(c): Effective date specifies applicability to taxable years beginning after December 31, 2024.
- 4Overall aim: Create clearer or broader parity between income sourced in U.S. possessions and income sourced in the mainland United States to support economic activity in those territories.
- 5Scope: Applies to provisions governing the residence/sourcing of income for taxpayers tied to possessions, potentially affecting residents and businesses with activity in those areas.