Royalties include compensation paid to the owner for the use of property, usually
copyrighted material (e.g., books, music, or art) or natural resources (e.g., minerals,
oil, gravel, or timber). Royalty compensation may be expressed as a percentage of
receipts from using the property or as an amount per unit produced.
To be considered royalties, payments for the use of natural resources also must be
under a formal or informal agreement whereby the owner authorizes another individual
to manage and extract a product (e.g., timber or oil); and
in an amount that is dependent on the amount of the product actually extracted.
NOTE: An outright sale of natural resources by the owner of the land or by the owner of
rights to use the land constitutes conversion of a resource. Proceeds from the conversion
of a resource are not income.