Territorial Tax Equity and Economic Growth Act of 2025

This bill changes federal tax rules to support economic recovery in the U.S. territories (Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands). It updates who counts as a “bona fide resident” of a territory and adjusts how income is treated for people and businesses tied to these places. The goal is to make it clearer when income is considered from a territory versus the mainland U.S., and to avoid treating minor, support‑type activities in the U.S. as U.S. income for tax purposes when the real business is in a territory .

Key points

• Who is affected: Individuals and businesses connected to Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, especially those working to qualify as territory residents for tax purposes or operating businesses based there.
• What changes:
  • Tightens and clarifies the rules for who counts as a territory resident by changing the “substantial presence” test in the tax code’s territory section.
  • Revises how income is sourced: it applies different federal rules to decide when income from outside a territory is still connected to a trade or business inside the territory.
  • Says that activities in the U.S. that are merely preparatory or auxiliary (support‑type tasks) will not be treated as U.S. income or as income connected to a U.S. business, helping keep such income tied to the territory when appropriate.
  • Updates the sourcing rules for sales of personal property linked to territories.
• When: Changes apply to tax years starting after December 31, 2024.