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LEGAL RULING NO. 345

CALIFORNIA FRANCHISE TAX BOARD
Legal Ruling No. 345

September 15, 1970

NONRESIDENTS -- SOURCE OF INCOME

Royalty income received by a nonresident from the sale of textbooks written in California under a pre-existing contract with the publisher is California source income in the nature of compensation for services performed in this state.

Advice has been requested regarding the taxability of royalty payments received from a New York publisher by a nonresident co-author of a science textbook first published in 1952 and completely revised and republished in 1957, 1962, and 1966. Taxpayer's writing, all done under a continuing contract with the publisher, was performed in California while a resident for the 1952, 1957, and 1962 editions, and one-half in California and one-half out of state after a change of residence for the 1966 edition.

Unlike royalty income derived from the sale of rights to an independently developed finished product, payments for writing and revising a textbook under contract are compensation for services and thus taxable at the place where the services are performed.  Appeal of Charles W. and Mary D. Perelle, Cal. St. Bd. of Equal., December 17, 1958, CCH 201-194, P-H 58, 144. Accordingly, the royalties received for the 1952, 1957 and 1962 editions, and one-half the royalties received for the 1966 edition are income from a California source and taxable in this state. The other one-half of the royalties from the 1966 edition is not income from a source within this state, and not taxable by California to its nonresident recipient.