# Plain Language Summary: Territorial Tax Equity and Economic Growth Act of 2023

This bill makes it easier for people to qualify for special tax breaks if they move to U.S. territories like Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or the Northern Mariana Islands. Right now, if you want to take advantage of these tax benefits, you need to spend at least 183 days per year in one of these territories. This bill cuts that requirement down to 122 days—roughly four months instead of six. The idea is to attract more people and businesses to these islands by making the tax incentives more accessible, which supporters believe will help boost their economies.

The bill also changes how income gets taxed for people living in these territories. Currently, if someone who qualifies for these tax breaks earns money from activities in the mainland U.S., that income might still be taxed. This bill narrows when that happens. For example, if someone does preparatory work on the mainland—like planning or preliminary activities—that work won't count as taxable U.S. income. The bill also adjusts the rules for when business income from outside the territories is considered connected to a business operating within the territories, making it easier to exclude certain types of income from taxation.

In practical terms, this means people considering a move to these U.S. territories will have an easier time qualifying for tax benefits with a shorter residency requirement, and once they qualify, more of their income may be exempt from federal taxes. The changes apply to tax years starting after December 31, 2022, so they're already in effect.

Territorial Tax Equity and Economic Growth Act of 2023

Plaskett, Stacey E.

Territorial Tax Equity and Economic Growth Act of 2023 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). 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. 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 <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> The bill also modifies the income source rules that apply to certain personal property sales in the Virgin Islands.