H.R.365 - Territorial Tax Parity Act of 2025 (119th Congress)
Summary
H.R. 365, the Territorial Tax Parity Act of 2025, aims to amend the Internal Revenue Code of 1986 to modify residence and source rules, intending to foster economic recovery in U.S. possessions. The bill modifies Section 937(b)(2) and Section 865(j)(3) of the code. These changes affect how income is sourced and taxed within U.S. territories.
The bill specifically targets income attributable to an office or fixed place of business within the United States and modifies source rules for personal property sales involving U.S. possessions. The amendments are set to apply to taxable years beginning after December 31, 2024.
Introduced in the House of Representatives by Ms. Plaskett, the bill was referred to the Committee on Ways and Means, indicating its focus on tax-related matters.
Expected Effects
The likely effect of this bill is to change the way businesses operating in U.S. territories are taxed, potentially making it more attractive for businesses to invest and operate there.
By modifying the source rules, the bill could lead to increased economic activity and job creation in these territories. It could also simplify tax compliance for businesses operating in multiple locations.
However, the changes could also have unintended consequences, such as shifting tax burdens or creating new loopholes. Careful monitoring and potential adjustments may be necessary.
Potential Benefits
- Economic Boost: Could stimulate economic growth in U.S. territories by making them more attractive for investment.
- Job Creation: Increased business activity could lead to more jobs for residents of these territories.
- Simplified Compliance: Modifying source rules could simplify tax compliance for businesses operating across different jurisdictions.
- Parity: Aims to create greater tax parity between U.S. states and territories.
- Investment: Could incentivize businesses to invest in infrastructure and development within U.S. territories.
Most Benefited Areas:
Potential Disadvantages
- Potential Loopholes: The modified rules could create unintended loopholes that businesses might exploit to minimize their tax liabilities.
- Shifting Tax Burdens: The changes could shift tax burdens, potentially disadvantaging certain businesses or individuals.
- Complexity: Despite aiming for simplification, the modifications could introduce new complexities in tax law.
- Uncertainty: The economic impact on territories is not guaranteed and depends on how businesses respond to the changes.
- Revenue Impact: The changes could reduce federal tax revenue, requiring adjustments elsewhere.
Constitutional Alignment
The bill appears to align with the Constitution's general welfare clause (Preamble), as it aims to promote economic recovery in U.S. territories. Congress has the power to lay and collect taxes (Article I, Section 8, Clause 1) and to make all laws which shall be necessary and proper for carrying into execution the foregoing powers (Article I, Section 8, Clause 18).
The bill does not appear to infringe upon any specific constitutional rights or protections. The power to legislate on matters relating to territories is generally understood as an implied power derived from the power to acquire and govern territory (Article IV, Section 3, Clause 2).
However, the specific application and effects of the tax law changes would need to be monitored to ensure that they do not disproportionately burden any particular group or violate any constitutional principles.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).