Territorial Tax Equity and Economic Growth Act of 2023

Subjects: Taxation

Summary:  <p><b>Territorial Tax Equity and Economic Growth Act</b> <b>of 2023</b></p> <p> This bill modifies the residence and income source rules that apply with respect to the taxation of income from U.S. possessions (i.e., Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands).</p> <p>The bill specifies that a bona fide resident of a possession must have a substantial presence in the possession for at least 122 days during the year. Under current law, the person must be present for at least 183 days during the year.</p> <p>Under current law, income is not possession source income if it is treated as (1) income from sources within the United States, or (2) as effectively connected with the conduct of a trade or business within the United States. The bill amends this rule to</p> <ul> <li>specify that it applies only to the extent that the income is attributable to an office or fixed place of business within the United States, </li> <li>specify principles that must be used to determine whether income from sources without a possession is effectively connected with the conduct of a trade or business within the possession, and</li> <li>prohibit income from activities within the United States which are of a preparatory or auxiliary character from being treated as income from sources within the United States or as effectively connected with the conduct of a trade or business within the United States. </li> </ul> <p>The bill also modifies the income source rules that apply to certain personal property sales in the Virgin Islands.</p>

<html><body><pre>[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1034 Introduced in House (IH)]

&lt;DOC&gt;






118th CONGRESS
  1st Session
                                H. R. 1034

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

                           February 14, 2023

 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 Equity and Economic 
Growth Act of 2023''.

SEC. 2. MODIFICATION TO RESIDENCE AND SOURCE RULES INVOLVING 
              POSSESSIONS.

    (a) Bona Fide Resident.--Section 937(a) of the Internal Revenue 
Code of 1986 is amended--
            (1) by striking the last sentence, and
            (2) by amending paragraph (1) to read as follows:
            ``(1) who has a substantial presence (determined under the 
        principles of section 7701(b)(3)(A) (applied by substituting 
        `122 days' for `31 days' in clause (i) thereof) without regard 
        to sections 7701(b)(3)(B), (C), and (D)) during the taxable 
        year in Guam, American Samoa, the Northern Mariana Islands, 
        Puerto Rico, or the Virgin Islands, as the case may be, and''.
    (b) Source Rules.--Section 937(b) of such Code is amended--
            (1) in paragraph (1), by striking ``and'' at the end,
            (2) in paragraph (2), by striking the period at the end and 
        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)),'', and
            (3) by adding at the end the following new paragraphs:
            ``(3) for purposes of paragraph (1), the principles of 
        section 864(c)(2), rather than rules similar to the rules in 
        section 864(c)(4), shall apply for purposes of determining 
        whether income from sources without a possession specified in 
        subsection (a)(1) is effectively connected with the conduct of 
        a trade or business within such possession, and
            ``(4) for purposes of paragraph (2), income from activities 
        within the United States which are of a preparatory or 
        auxiliary character shall not be treated as income from sources 
        within the United States or as effectively connected with the 
        conduct of a trade or business within the United States.''.
    (c) Source Rules for Personal Property Sales.--Section 865(j)(3) of 
such Code is amended by inserting ``, 932,'' after ``931''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2022.
                                 &lt;all&gt;
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