A bill to amend the Internal Revenue Code of 1954 to clarify the extent to which a State, or political subdivision, may tax certain income from sources outside the United States.

Amends the Internal Revenue Code to prohibit any State, or political subdivision thereof, which imposes an income tax on a corporation from taking into account income of any foreign corporation which is also a member of an affiliated group to which the domestic corporation belongs, unless such amount is subject to Federal income tax.

Prohibits any State, or political subdivision thereof, from taxing or otherwise taking into account: (1) the amount of the deduction for dividends paid by a corporation which has elected the Puerto Rico and possession tax credit for the taxable year; or (2) a certain percentage (determined according to specified formulae) of any dividend received from a domestic corporation which is not treated as income from sources within the United States (or a dividend received by a corporation from a foreign corporation).

Provides that nothing in this Act shall subject any dividend, other income item or portion thereof, to taxation if such taxation is otherwise prohibited by any law, or rule of law, of the United States.