IL IT 12-0005-GIL Illinois Income Tax 2012-03-14

Did a Minnesota resident owe Illinois income tax on compensation earned entirely from Illinois work?

Short answer: Yes. Illinois taxed a nonresident's compensation earned from work in Illinois. The taxpayer could not use Illinois's resident credit to shift the tax to Minnesota because that credit was available only to Illinois residents. Instead, the GIL explained that the resident state generally prevents double tax by allowing its resident a credit for tax paid to the source state; it pointed to Minnesota's resident credit.

Apply this to your situation

This page answers the general question as of 2012. Ezel answers yours, under current Illinois tax law, with citations.

Disclaimer: This is an official 2012 Illinois Department of Revenue General Information Letter addressing a Minnesota resident whose compensation was entirely Illinois-source. A GIL is NOT a statement of Department policy and is NOT binding on the Department. Work location, residence, reciprocity, compensation type, withholding, resident-state credit law, tax year, and current allocation rules can change which state taxes the income and how double taxation is relieved.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Illinois taxed the compensation because the nonresident earned it in Illinois. Residents were taxed on all income, while nonresidents were taxed on income allocated to Illinois under the compensation, nonbusiness-income, and business-income provisions.

The taxpayer wanted to pay Minnesota instead because Minnesota was the state of residence. IDOR explained that relief from double taxation normally worked in the opposite direction: the resident state gave its resident a credit for tax paid to the source state. Illinois's other-state credit was unavailable because the taxpayer was not an Illinois resident.

What this means for you

File and pay the work state on source compensation, then determine whether your resident state grants a credit. Do not claim a resident-only credit on a nonresident return.

Common questions

Q: Did living in Minnesota prevent Illinois tax?
A: No.

Q: Which state was expected to provide double-tax relief?
A: Minnesota, the state of residence.

Citations and references

35 ILCS 5/202, 204, 301, 302
35 ILCS 5/601(b)(3)

Subject

Allocation

Source

Original ruling text

IT 12-0005-GIL 03/14/2012 ALLOCATION
General Information Letter: Compensation paid in this State to a nonresident is taxable
by Illinois.
March 14, 2012
Dear:
This is in response to your letter postmarked March 9, 2012, in which you request a letter ruling. The
nature of your request and the information you have provided require that we respond with a General
Information Letter, which is designed to provide general information, is not a statement of Department
policy and is not binding on the Department. See 86 Ill. Adm. Code 1200.120(b) and (c), which may
be found on the Department's web site at www. tax.illinois.gov.
In your letter you have stated the following:
I am a non-resident (I live in Minnesota) attempting to file my taxes. I have been in
contact with Ms. Z, someone working in the Department of Revenue customer service.
She was helpful, and recommended that I contact someone in legal services regarding
an issue I have as I file state taxes.
Like I said, I live in Minnesota, but I work, and earn 100% of my income from an Illinois
source. I am writing you to question that policy that is in effect disallowing nonresidents from using line 16 of the IL-1040. By completing this line, I would be able to
pay taxes to Minnesota, and receive the income that was withheld from my checks by
Illinois.
Please correct me if I am wrong, but from what I gather, the way the laws stand, I must
pay 100% of my taxes to Illinois, and use a mechanism similar to IL line 16 to avoid
paying Minnesota. So short of paying two states, I do not see how it would be possible
for me to pay the state in which I live.
Because I live in Minnesota, and I use services (libraries, schools, parks and civic
centers) in my home state, I feel obligated to pay taxes to Minnesota. I cannot
understand why such a policy is in place, anyways. I do not utilize such publically
funded services in Illinois, and therefore do not feel obligated to pay taxes in this
location.
Please let me know with whom I need to get in contact in order to change this tax policy.
Alternatively, please let me know if there is an option or potential exception to the line
16 rule (than an NR are unable to use it).
Response
The Illinois income tax is computed on the taxpayer’s “net income,” which is defined in Section 202 of
the Illinois Income Tax Act (35 ILCS 5/202) as “that portion of his base income for such year which is
allocable to this State under the provisions of Article 3, less the standard exemption allowed by
Section 204.” In Article 3 of the Illinois Income Tax Act, Section 301(a) (35 ILCS 5/301) provides:
All items of income or deduction which were taken into account in the computation of
base income for the taxable year by a resident shall be allocated to this State.

IT 12-0005-GIL
March 14, 2012
Page 2

For nonresidents, Section 301(c) provides that:
Any item of income or deduction which was taken into account in the computation of
base income for the taxable year by any person other than a resident and which is
referred to in Section 302, 303 or 304 (relating to compensation, nonbusiness income
and business income, respectively) shall be allocated to this State only to the extent
provided by such section.
Section 302 (35 ILCS 5/302) basically provides that compensation earned by an employee working in
Illinois is allocated to Illinois.
To the best of my knowledge, every state that imposes income tax on individuals follows a similar
pattern: residents are taxed on income regardless of geographic source, while nonresidents are
taxed only on income from sources within the taxing state. Because this pattern would cause an
individual receiving income from a source outside his or her state of residency to be taxed twice on
that income, Section 601(b)(3) of the Illinois Income Tax Act (35 ILCS 5/601) allows residents a credit
for taxes paid to other states on income from sources outside Illinois. Again, to the best of my
knowledge, every other state that imposes income tax on individuals has a similar credit. Minnesota
does, and allows the credit on Line 17 of the 2011 Form M1. As noted on the Schedule M1CR, this
credit is available only to Minnesota residents.
Changing the law would require an act of the Illinois General Assembly.
As stated above, this is a general information letter which does not constitute a statement of policy
that applies, interprets or prescribes the tax laws, and it is not binding on the Department. If you are
not under audit and you wish to obtain a binding Private Letter Ruling regarding your factual situation,
please submit all of the information set out in items 1 through 8 of Section 1200.110(b). If you have
any further questions, you may contact me at (217) 782-7055.
Sincerely,

Paul S. Caselton
Deputy General Counsel – Income Tax

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