Territorial Tax Equity and Economic Growth Act of 2023
The proposed amendments modify the requirements for determining a bona fide resident and the source of income, which could enhance investment opportunities in U.S. territories. By redefining residence criteria, the bill intends to encourage more individuals to establish residency in these areas, potentially leading to an influx of residents who may stimulate local economies. Additionally, the adjustments to source rules could allow businesses operating in these territories to retain more of their earnings, contributing further to economic growth in the region.
House Bill 1034, known as the Territorial Tax Equity and Economic Growth Act of 2023, aims to amend the Internal Revenue Code of 1986 specifically to modify residence and source rules affecting U.S. territories. The bill seeks to promote economic recovery by adjusting how income is taxed for individuals and businesses in U.S. possessions like Guam, American Samoa, Northern Mariana Islands, Puerto Rico, and the Virgin Islands. Notably, it proposes changes to how substantial presence and source rules are determined for taxation, potentially offering more favorable conditions for residents and corporations in these regions.
While the bill is designed to foster growth in U.S. possessions, concerns have been raised regarding the potential long-term implications of altering tax structures. Critics worry that modifying these taxation rules may undermine federal revenue or lead to inequities among U.S. territories and states, as the different tax treatments could incentivize businesses to relocate to territories for lower tax liabilities. Legislative discussions may revolve around balancing the benefits of localized economic growth against the need for consistent tax policies across the United States.