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Old Republic Title Gram
Understanding Supplemental Taxes
- Question: When did withholding start for California
residents?
Answer: The withholding law applies to dispositions of
California Real Estate by both residents and
non-residents which close on and after January 1,
2003. Previously, withholding has only been required
of certain non-resident sellers.
- Question: Why was this withholding law enacted?
Answer: As part of attempting to balance the state
budget, this withholding provision was added to
legislation on the last day of the Legislative session
in 2002. It was estimated to accelerate collection of
$285 million in additional state revenue.
- Question: Who is responsible for withholding?
Answer: The law requires the buyer (called the
transferee) to withhold from what would otherwise be
paid to the seller.
- Question: What unit at the Franchise Tax Board handles
the withholding?
Answer: The Withholding Services and Compliance
Section handles the withholding. The phone number is
(888) 792-4900 and information can be found on their
website at:
http://www.ftb.ca.gov/geninfo/wscs/index.html.
- Question: How much is the withholding?
Answer: The withholding is 3 & 1/3% of the gross sale
price. It does not take into account costs of the sale
such as real estate commissions or other settlement
costs. Withholding is currently due by the 20th day of
the calendar month following the date title is
transferred. California Form 597 is used to report and
a remit copy must be provided to the seller to attach
to their tax return.
- Question: What exemptions apply?
Answer: If you are an individual selling property, the
buyer will not have to withhold from your proceeds if
the sale price is less than $100,000, or you are
selling your principal residence or if you are selling
at a loss. Other exemptions are for tax deferred
exchanges and involuntary conversions of property.
- Question: Does the seller have to do anything to
qualify for exemptions?
Answer: Yes. The seller will be required to sign a
certification under penalty of perjury as their
eligibility for the exemption.
- Question: Can the seller apply to the Franchise Tax
Board for an exemption?
Answer: The law allows applications for reduced
withholding and waivers but not by individuals, only
by corporations and other entities.
- Question: What is the role of the escrow holder
regarding withholding?
Answer: The law requires the escrow holder to provide
a notice of the requirements. The escrow holder cannot
make a legal determination as to whether any exemption
applies.
- Question: Will the escrow agent do the withholding of
the seller´s money on behalf of the buyer?
Answer: The escrow agent may withhold and remit to the
Franchise Tax Board if the parties agree. The fee for
this service may not exceed $45.00.
- Question: How will a seller get the withholding
returned?
Answer: The only way to recover the withholding is by
filing your California State income tax return.
- Question: Does it matter if the seller lost money on
other real estate or non-real estate transactions?
Answer: No. Each transaction is considered separately.
- Question: What type of real estate is covered by the
new law?
Answer: All real estate interests are covered unless
one of the exemptions applies. This means the sale of
fee title or easements or other interests may be
subject to withholding.
The Title Consumer is published by the California Land
Title Association. Member companies of the California
Land Title Association are dedicated to facilitating
the transfer of real property throughout California
and increasing the public's awareness of the value and
purpose of title insurance. © January, 2003 REVISED
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