Territorial Tax Equity and Economic Growth Act

To amend the Internal Revenue Code of 1986 to provide for economic recovery in the territories. 1. Short title This Act may be cited as the Territorial Tax Equity and Economic Growth Act 2. Modification to residence and source rules involving possessions (a) Bona fide resident Section 937(a) (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 31 days . (b) Source rules Section 937(b) of such Code is amended— (1) by striking and (2) in paragraph (2) by striking the period at the end and inserting the following: 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)), (3) by adding at the end the following: (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 adding 932, 931, 933. (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016.

Summary: Territorial Tax Equity and Economic Growth Act This bill amends the Internal Revenue Code to modify the residence and income source rules involving U.S. possessions, including Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands. The bill specifies that a bona fide resident of a possession is a person who has a substantial presence in the possession for at least 122 days during the calendar year. (Under current law, the person must be present for at least 183 days during the year.) (Under current law, income is not considered to be 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 specify that it applies to the extent that the income is attributable to an office or fixed place of business within the United States. Income from activities within the United States which are of a preparatory or auxiliary character may 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. The bill specifies 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. The Internal Revenue Service may limit the application in the Virgin Islands of requirements for U.S. citizens and resident aliens to pay a tax to a foreign country to be considered a nonresident of the United States for certain personal property sales.