CLTA News Express
An Express Article from the California Land Title Association
Real Estate Withholding Changes Being Considered
Bulletin 07/08-56 - November 08, 2007
The California Franchise Tax Board is considering a staff recommendation on changes to the real estate withholding law that would impact the title and escrow industries. The recommendation would require the approval of the Board to be introduced as legislation in 2008. Any changes would not become effective until 2009. The highlights of the proposal are listed below:
• Non-California partnerships would be subject to withholding on California real property sales. The reason for the new withholding proposal is that non-California partnerships with nonresident partners are not subject to withholding and might avoid taxation.
• The withholding rates for non-California S corporations not using the default withholding rate of three and one-third percent would be increased. The stated reason for this change is that the rate of withholding is insufficient to approximate the total tax due by both the S corporation and nonresident shareholders on the gain.
• A buyer under an installment sale would be required to withhold on each installment sale payment. The reason given is that nonresident sellers are not subject to withholding when payments are received in later years and could avoid taxation. The FTB staff does recognize that a potential negative policy consideration is that the change would place a burden on sellers and might stifle seller-financed installment sale transactions.
• The duties of a withholding agent such as a title company to withhold and remit would be recast by the proposal. It appears that the staff recommendations are intended to get rid of redundancies and technical errors in the existing law.
The CLTA has worked closely in the past with allied real estate related trade associations to address withholding legislation and regulations. The same cooperative approach is envisioned for these proposals as the CLTA evaluates the proposals developed by the FTB staff.
