Were a nonresident actor's worldwide movie residuals taxable in Illinois when the movie work was performed entirely in Illinois?

Plain-English summary

The actor's residuals were Illinois-source compensation subject to Illinois withholding. Form W-2 treatment showed that the payments were compensation for personal services, and Section 102 carried that federal characterization into Illinois law.

For a nonresident, compensation is allocated to Illinois when the underlying services are performed entirely in the state. Regulation 100.3120(b) applied that sourcing framework to later payments for past services. Because the movie work was performed entirely in Illinois, the later residuals were Illinois compensation despite the worldwide sources producing revenue from the movie.

What this means for you

Trace deferred or residual compensation back to the services that earned it. The later geographic market for the finished work does not replace the employee-service sourcing rule applied in this GIL.

Common questions

Q: Did nonresident status prevent Illinois tax?
A: No.

Q: Why did worldwide residual revenue not control?
A: The payment was W-2 compensation for acting services, and those services were performed entirely in Illinois.

Citations and references

• 35 ILCS 5/102
• 35 ILCS 5/701(a)
• 35 ILCS 5/302(a), 304(a)(2)(B)
• 86 Ill. Adm. Code 100.3120(b)

Subject

Compensation

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2012/it-12-0031.pdf

Original ruling text

IT 12-0031-GIL 11/13/2012 COMPENSATION
General Information Letter: Deferred compensation received for employee services
performed entirely within Illinois are taxable by Illinois.
Dear:
This is in response to your letter dated October 29, 2012 in which you request information regarding
the taxation of certain compensation. The nature of your request and the information you have
provided require that we respond with a General Information Letter (GIL). A GIL 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 accessed at
www.revenue.state.il.us.
In your letter you have stated the following:
In 19XX while a resident of STATE I was employed as an actor in a movie (MOVIE) shot in Illinois by
COMPANY. I paid IL state taxes for the income I earned in IL in 19XX. Since that time COMPANY
has continued to withhold and pay IL taxes from the residuals I have earned from said movie. I
understand paying IL taxes for the income while working in Illinois, but the money I make from
residuals is from sources all over the world. This cannot be right. According to that logic, any band,
for example, that recorded an album in IL would owe IL taxes on 100% of the worldwide royalties
from that album even though they are not and never have been a resident of IL. The same could be
said for nonresident authors who have their books printed in IL.
Could you please send me a letter that would enable me to clear this issue up with COMPANY?
RULING
Based on the information contained in your letter, it appears that COMPANY is properly withholding
Illinois income tax. Your letter states that the residual income is reported to you on federal Form W-2,
which indicates that such income is considered for federal income tax purposes to be compensation
for personal services. Pursuant to Section 102 of the Illinois Income Tax Act (“IITA”; 35 ILCS 5/102),
the same characterization applies for Illinois income tax purposes. Section 102 states:
Except as otherwise expressly provided or clearly appearing from the context, any term used in this
Act shall have the same meaning as when used in a comparable context in the United States Internal
Revenue Code of 1954 or any successor law or laws relating to federal income taxes and other
provisions of the statutes of the United States relating to federal income taxes as such Code, laws
and statutes are in effect for the taxable year.
Under IITA Section 701(a), Illinois withholding is required in respect of any item of “compensation
paid in this State” as to which federal withholding is required. IITA Section 302(a) states:
All items of compensation paid in this State (as determined under Section 304(a)(2)(B)) to an
individual who is a nonresident at the time of such payment and all items of deduction directly
allocable thereto, shall be allocated to this State.
IITA Section 304(a)(2)(B) states:
Compensation is paid in this State if:

IT 12-0031-GIL
November 13, 2012
Page 2
(i) The individual’s service is performed entirely within this State;
(ii) The individual’s service is performed both within and without this State, but the service performed
without this State is incidental to the individual’s service performed within this State; or
(iii) Some of the service is performed within this State and either the base of operations, or if there is
no base of operations, the place from which the service is directed or controlled, is within this State,
or the base of operations or the place from which the service is directed or controlled is not in any
state in which some part of the service is performed, but the individual’s residence is in this State.
Department Regulations Section 100.3120(b) (86 Ill. Adm. Code 100.3120(b)) provides rules for
determining whether compensation paid for past service is considered compensation paid in Illinois.
The Section states, in part, as follows:
Where compensation is paid to a nonresident for past service, such compensation will, for the
purpose of determining whether and to what extent such compensation is “paid in” Illinois and is
allocated to Illinois under IITA Section 302(a), be presumed to have been earned ratably over the
employee’s last 5 years of service with the employer (or any predecessor or successor of the
employer or a parent or subsidiary corporation of the employer), in the absence of clear and
convincing evidence that such compensation is properly attributable to a different period of
employment or that it was not earned ratably over the appropriate period of employment.
Compensation earned in each past year will be deemed compensation paid in Illinois if the
individual’s service in such year met the tests set forth in subsection (a) above.
In this case, the compensation paid to you for your past service as an actor in a movie filmed in
Illinois would clearly be allocable to Illinois under IITA Section 304(a)(2)(B)(i). Accordingly, it appears
that COMPANY is properly withholding Illinois tax.
As stated above, this is a GIL 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 one through eight of 86 Ill. Adm. Code 1200.110(b). If you have additional
questions regarding this GIL, you may contact me at (217) 782-7055.

Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)