Did an Illinois motor carrier have to withhold Illinois tax from nonresident truck drivers who lived and principally worked in another state but sometimes drove in Illinois?

Plain-English summary

The employer could not decide withholding merely from its Illinois headquarters or the fact that drivers sometimes entered Illinois. The drivers lived and principally worked in another state, while the employer asserted that direction or control came from Illinois.

The GIL identified two routes to no Illinois withholding. First, federal law allowed only the residence state to tax compensation of a covered motor-carrier employee regularly performing assigned duties in two or more states. Second, Illinois localization rules kept wages outside Illinois when the Illinois driving was merely incidental to services principally performed elsewhere.

If federal protection did not apply and Illinois driving was more than incidental, withholding could be proper if the employee's base of operations was Illinois. The employer's own base was not controlling; the employee's fixed work center, contractual assignment, directions, mail, supplies, equipment, and records were relevant.

What this means for you

For multistate drivers, document federal motor-carrier status and the actual duty pattern before applying ordinary state localization rules. Then determine each driver's base of operations rather than substituting the employer's headquarters.

Common questions

Q: Did occasional Illinois driving automatically require withholding?
A: No.

Q: Did the Illinois headquarters automatically make Illinois the base of operations?
A: No.

Q: Did the GIL conclusively exempt these drivers?
A: No. It supplied conditional rules because the facts were incomplete.

Citations and references

• 35 ILCS 5/701(a) — withholding from compensation paid in Illinois
• 35 ILCS 5/304(a)(2)(B) — service localization and base of operations
• 35 ILCS 5/203(a)(2)(N) — subtraction for federally protected transportation compensation
• 49 U.S.C. § 14503(a)(1) — motor-carrier employee compensation
• 86 Ill. Adm. Code 100.7010, 100.2590(a) — localization and federal protections

Subject

Withholding – Other Rulings

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2014/it-14-0001.pdf

Original ruling text

IT 14-0001 GIL 01/24/14 Withholding – Other Rulings
No Illinois withholding is required from wages paid to a nonresident employee who performs some of
his multistate services in Illinois, if the employee’s base of operations is outside Illinois or if the
employee’s wages are exempt from withholding except by his state of residence under 49 U.S.C. §
14503(a)(1).
January 24, 2014

Re:

Illinois income tax withholding
EMPLOYEE

Dear Xxxxx:
This is in response to a letter written by your employee, EMPLOYEE, regarding Illinois income tax
withheld from his wages. Based on the information EMPLOYEE provided, it is not clear whether or
not withholding is required. Therefore, we are providing the following information that you may use to
determine whether Illinois income tax withholding is required. 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 from the Department’s web site at
www.ILtax.com.
Your employee’s letter states as follows:
I talked to one of your agents on this matter and he told me to contact you for help. The
problem is that there is 6 truck drivers here in CITY, STATE that live and work in CITY, STATE
and the company that we work for is located in CITY, IL. Each week they deduct Illinois income
taxes from our pay check even though we only work in CITY, STATE. I tried to tell them that
we do not need to have this taken out because we do not work or live there in Illinois. So
attached is the response I got back from them. This letter does not make sense to me because
they the company pays corporate Illinois taxes for the business but we should not have to pay
Illinois state income taxes there when we work in CITY, STATE. Please clear this up with us
drivers in CITY, STATE and or the Company in Illinois. They will only change this if you tell
them otherwise. This would be greatly appreciated for us here in CITY, STATE.
The attached letter, states:
We are in receipt of your letter requesting exemption from Illinois state tax withholding. Based
on our thorough research with the Illinois Department of Revenue, we have substantiated that
COMPANY is following the proper procedures outlined in Department of Revenue Publications
by withholding Illinois state taxes from your wages. While you are a resident of STATE, your
base of operations from which the service you provide is directed or controlled in the State of
Illinois.
Therefore, we will continue to deduct Illinois state taxes from your wages. At the end of the tax
year, you must file an IL 1040 and follow the guidelines provided for a non-resident of the
state.
If you disagree with this decision, please have the Illinois Department of Revenue provide us
written justification that supports a determination to exempt you from state withholding.

EMPLOYEE indicated during a phone conversation that some portion of his driving duties is
performed in Illinois.
RULING
Section 701(a) of the Illinois Income Tax Act (“IITA” 35 ILCS 5/701) requires every employer
maintaining an office or transacting business in Illinois to withhold Illinois income tax on wages that
constitute “compensation paid in this State” under IITA Section 304(a)(2)(B). Section 304(a)(2)(B)
states that compensation is paid in this State if:
(1) The individual’s service is performed entirely within this State;
(2) 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
(3) 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(a)(2) elaborates on these rules as follows:
The [rules regarding compensation paid in this State] are to be applied in such manner that if
they were in effect in other states an item of compensation would constitute compensation
“paid in” only one state. Thus, if an item would, under these rules, constitute compensation
paid in a state other than Illinois because the individual’s service was localized in such other
state …, it could not also be compensation paid in Illinois.
Department Regulations Sections 100.7010(c)(2) and (3) provide rules for determining whether an
individual’s service in a particular state is incidental to the primary service performed:
(2)
In determining whether an individual's service performed without this
State is
incidental to his service performed within this State for purposes
of the test set forth in
subsection (a)(1)(B), the term "incidental" means
any service which is necessary to or
supportive of the primary service performed by the employee or which is temporary or
transitory in nature or consists of isolated transactions. The incidental service referred to
above may or may not be similar to the individual's normal occupation so long as it is
performed within the same employer-employee relationship. That is, an individual who
normally performs all of his service in this State
may be sent by his employer to another
state to perform service which is totally different in nature from his usual work or he may be
sent to do
similar work. So long as such service is temporary or consists merely of
isolated transactions, it will be considered to be incidental to his service performed
within this State, and his entire compensation will be subject to
withholding.
(3)

In some cases, it may be difficult to determine whether service performed in another
state is incidental to service performed within this State. In any such case, the facts
(including any contract of employment) should be carefully considered. In many instances,
the contract of employment will
provide a definite territorial assignment which will be
prima facie
evidence that the service is localized within such territory. However, the
presence or absence of a contract of employment is but one fact to be
considered.
In every case, the ultimate determination to be made is whether the individual's service

was intended to be and was in fact principally performed within this State and whether
any service which was performed in another state was of a temporary or transitory nature
or arose out of special circumstances at infrequent intervals. The amount of time spent
or the amount of service performed without this State should not be
regarded as
decisive, in itself, in determining whether such service is incidental to service performed
within this State. For example, an
individual normally performing service within this
State might be sent on a special assignment to another state for a period of months. The
service in
the other state would nevertheless be incidental to service within this State
if such special assignment were an isolated transaction.
Department Regulations Section 100.7010(c)(4) contains examples that illustrate services that may
be considered incidental to the primary service.
Department Regulations Section 100.7010(d)(2) provides rules for determining an employee’s base
of operations:
The term "base of operations" refers to the place or fixed center from which the individual
works. An individual's base of operations may be his business office (which may be maintained
in his home), or his contract of employment may specify a place at which the employee is to
receive his directions and instructions. In the absence of more controlling factors, an
individual's base of operations may be the place to which he has his business mail, supplies,
and equipment sent or the place where he maintains his business records.
As can be seen, the base of operations of the employer is not controlling. Department Regulations
Section 100.7010(d)(3) contains examples illustrating the determination of an employee’s base of
operations.
Department Regulations Sections 100.7010(b)(2) and 100.2590(a) reference certain Federal law that
limits the authority of Illinois to subject certain nonresident employees of motor carriers to Illinois
income taxation. Regulations Section 100.2590(a) provides, in part:
Federal law affects the authority of the State of Illinois to subject certain employees of
railroads, motor carriers, merchant mariners, and air carriers to Illinois income taxation. By
virtue of the provisions of federal law quoted in subsections (a)(1) through (4) below,
compensation that would otherwise be subject to Illinois income taxation and withholding by
virtue of IITA Sections 302(a) and 304(a)(2)(B) is subtracted from adjusted gross income in
determining Illinois base income pursuant to IITA Section 203(a)(2)(N) and is not subject to
Illinois income tax withholding.
…
49 USC 14503(a)(1) states that no part of the compensation paid by a motor carrier providing
transportation subject to the jurisdiction of the [Interstate Commerce] Commission under
subchapter I of chapter 135 of this title or by a motor private carrier to an employee who
performs regularly assigned duties in 2 or more states as such an employee with respect to a
motor vehicle shall be subject to the income tax laws of any state or subdivision of that state,
other than the state or subdivision thereof of the employee’s residence.
Applying the rules set forth above to the facts in this case, Illinois withholding would not be required if
the service EMPLOYEE performs qualifies for protection under Federal law, as set forth in
Department Regulations Section 100.2590(a). In the alternative, Illinois withholding would not be
required if the service EMPLOYEE performs in Illinois is merely incidental to the service he performs

in STATE. However, if Federal law does not apply and the service EMPLOYEE performs in Illinois is
more than merely incidental to the STATE services, Illinois withholding is proper if EMPLOYEE’S
base of operations is Illinois.
As stated above, this is a GIL. A GIL 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 have further questions
regarding this GIL, please call (217) 782-7055.

Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)