Under the 2013 Illinois rules, could a resident include nonprofessional gambling winnings in Schedule CR's out-of-state-income column?

Plain-English summary

Under the 2013 rule described, an Illinois resident could not place nonprofessional gambling winnings in Schedule CR's out-of-state-income column merely because another state taxed them. Section 601(b)(3) capped the credit using income that would be allocated or apportioned outside Illinois if every state used Illinois Article 3.

The GIL said Illinois had no provision sourcing a nonprofessional nonresident gambler's winnings to the gambling state. Applying that rule symmetrically to an Illinois resident meant the winnings did not enter column B. For a resident whose only other-state-taxed income was gambling winnings, the limitation fraction—and therefore the credit—was generally zero.

The letter distinguished a professional gambler, whose business income could be apportioned under Section 304. It also mentioned a bill introduced in 2013, but the GIL did not establish what later law became effective.

What this means for you

Treat this as a historical 2013 sourcing answer. For another tax year, verify the statute and Schedule CR instructions then in effect before applying the result.

Common questions

Q: Did another state's gambling tax automatically create an Illinois credit?
A: No.

Q: Why could the credit limit be zero?
A: The winnings did not count as income sourced outside Illinois under the Illinois rules described.

Q: Did the GIL decide current law?
A: No. It described 2013 law and only noted proposed legislation.

Citations and references

• 35 ILCS 5/601(b)(3) — resident credit and limitation
• 35 ILCS 5/301(c)(2), 302–304 — Illinois sourcing rules
• 35 ILCS 5/304 — professional-gambling business-income apportionment

Subject

Credit Foreign Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2013/it-13-0014.pdf

Original ruling text

IT 13-0014-GIL 11/4/2013 Credit Foreign Tax
Gambling winnings are sourced to the state of residence of the individual winner, so are
not included in the computation of the cap on the credit allowed under IITA Section 601
(b)(3).
November 4, 2013

Re:

Credit for Taxes Paid on Gambling Winnings

Dear XXXX:
This is in response to your letter dated October 30, 2013, 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:
Taxpayer received a Return Correction Notice which states “If you were
an Illinois resident when the gambling winnings were earned, you must
pay Illinois income tax on gambling winnings. You may not take a credit
for income tax paid to another state.” This has the result of the taxpayer
paying tax to the state where the winnings were received and also paying
tax to Illinois on the same winnings.
Please tell me where I can find this ruling in the statute or how this
reasoning was derived. Also I would like to know when this decision was
made.
The instructions to Form CR state “Schedule CR . . . allows you to take a
credit for income taxes you paid to other states on income you received
while a resident of Illinois.” We assume this means “income” of any kind.
We were told by an agent that the credit only applies to “earned income”
and not to gambling winnings. The instructions do not make that
distinction. Also the Return Correction Notice state: “the gambling
winnings were earned” which adds to the confusion.
Response
Section 601(b)(3) of the Illinois Income Tax Act (35 ILCS 5/601) allows residents to
claim a credit for income taxes paid to other states. That section also provides:
For taxable years ending on or after December 31, 2009, the credit
provided under this paragraph for tax paid to other states shall not exceed

that amount which bears the same ratio to the tax imposed by . . . this Act
as the amount of the taxpayer's base income that would be allocated or
apportioned to other states if all other states had adopted the provisions in
Article 3 of this Act bears to the taxpayer's total base income subject to tax
by this State for the taxable year.
The Schedule CR, Credit for Tax Paid to Other States, implements this limitation by
having the taxpayer list items of income from all sources in Column A of Lines 1 through
39, and write the amount that is sourced to other states using Illinois’ sourcing rules in
Article 3 of the Illinois Income Tax Act in Column B of each line, then writing the total
income and total non-Illinois sourced income on Line 42, and computing the fraction of
income that is from non-Illinois sources on Line 43. This fraction, multiplied by the
taxpayer’s Illinois income tax liability before credits, yields the limit on the credit allowed
for taxes paid to other states.
In Article 3 of the Illinois Income Tax Act, Section 301(c)(2) (35 ILCS 5/302) provides:
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 not otherwise specifically allocated or apportioned
pursuant to Section 302, 303 or 304 . . . in the case of an individual, trust
or estate, shall not be allocated to this State.
Except in the case of a professional gambler, who would apportion his or her gambling
winnings as business income under the provisions of Section 304 of the Illinois Income
Tax Act (35 ILCS 5/304), there is no provision in Sections 302, 303 or 304 that would
allocate gambling winnings of a nonresident to Illinois. Thus, if all states used Illinois’
rules for sourcing income, no other state would tax gambling winnings of a nonresident
gambler who is not a professional. Accordingly, pursuant to the provision in Section
601(b)(3) quoted above, there is no provision in the instructions to the Schedule CR that
allows gambling winnings of a nonprofessional gambler to be included in Column B of
any line. For the vast majority of residents who are taxed by another state only on
gambling winnings, this means that the total income sourced to other states under
Illinois’ rules is zero, and the credit allowed under Section 601(b)(3) is zero.
Legislation that would change this result by providing that gambling winnings from
Illinois gambling venues are sourced to Illinois under a new subsection (e-1) of Section
303 of the Illinois Income Tax Act has been introduced this year as Senate Bill 1729.
However, that bill would change the law only for 2013 and future years.
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