Real Estate Tax Payments FAQ—Authorized Agents
|Oregon Revised Statute 314.258 and Oregon Administrative Rule 150-314.258 provide for withholding of tax on certain real estate transactions of nonresident individuals or C corporations that do not do business in Oregon. This new law and rule apply to conveyances that occur on or after January 1, 2008. These questions are from authorized agents and are related to their duties and requirements. We also have a general Real Estate Withholding FAQ. |
1. Who is an authorized agent subject to this law?
An authorized agent is an Oregon licensed escrow agents or an attorney handling funds of the sale if there is no escrow agent.
If you are an authorized agent who is an employee of a transferee who merely makes payments to a transferor in connection with a conveyance or the authorized agent merely performs services such as inspections, appraisals, drafting services, and recording services performed for the benefit of a transferor or transferee in a conveyance you are not subject to these withholding requirements. Call us if you have any questions about whether or not you are subject to these laws.
2. How do I calculate the tax payment?
The payment required is the least of three amounts:
- 4 percent of the consideration (sales price);
- 8 percent of the gain from the sale that is includible in Oregon taxable income for the year; or
- The net proceeds distributed to the transferor.
3. When is a tax payment required?
As an authorized agent, you are generally required to submit a tax payment for from non-exempt transferors (nonresident individuals or C corporations who sell property located in Oregon). Single member LLCs and grantor trusts are generally disregarded entities and are treated the same as individuals for real estate withholding purposes, see questions 5 and 6. A nonresident individual or C corporation with an exempt transfer is also not subject to the withholding requirement.
4. When is a tax payment not required?
As an authorized agent, you are not required to submit a payment for an exempt transferor or an exempt transfer. Exempt transferors include a pass-through entity such as a partnership, S corporation, limited liability company (LLC) with more than one owner, limited liability partnership (LLP), and certain trusts and estates. Pass-through entities are responsible for their own withholding as explained in the instructions for Form OR-19. A tax payment is also not required by the authorized agent for an exempt transfer. See question 9 below.
5. How do I know when a tax payment is required on a trust?
A grantor trust is not recognized for tax purposes because the grantor retains substantial control. They are sometimes referred to as a "revocable trust" or a "living trust." As long as the nonresident grantor is alive, treat the trust as an individual and withholding is required if the sale is not an exempt transfer. Submit the payment using the name and identification number of the individual, not the grantor trust. If the trust is not a grantor trust or the grantor is deceased, the trust is an exempt transferor and the authorized agent is not required to submit a payment because the trust is responsible.
6. How do I know when to submit a payment for an LLC?
You are not required to submit a payment for an LLC with more than one owner (this type of company files a partnership tax return). You are required to submit a payment for a single member LLC owned by a nonresident individual or corporation unless it is an exempt transfer. An LLC owned by a single individual is generally a disregarded entity and treated as an individual. An LLC owned by a single corporation or who has elected to be treated as corporation is treated the same as any other corporation. Send in payemnts using the name and identification number of the individual or corporation, not the disregarded entity (LLC).
7. If the seller moves into or out of Oregon during the year, do I still have to submit a payment?
Yes, if the transferor was not a resident of Oregon on the closing date of the conveyance and it is not an exempt transfer.
8. What is the procedure for an exempt transferor?
If the seller is an exempt transferor, such as a partnership or Oregon resident individual, withholding is not required under this law. You are not required to use our forms for tax payments on real property and they are not required to complete Form WC.
You may choose to have them to sign a statement certifying that they are an exempt transferor. That is your choice and not required by Oregon law. Because Oregon law does not require a statement from an exempt transferor, we are not requesting that the transferor sign one. If you choose to have the exempt transferor sign a statement, you may keep that statement with your records. You are not required to send that statement to us.
9. Since a tax payment is required for non-exempt transferors unless they have an exempt transfer, what is an exempt transfer?
A tax payment is not required for exempt transfers:
- The total consideration for the property conveyed is $100,000 or less;
- The payment amount calculated is less than $100 for each transferor;
- The non-exempt transferor intends to defer tax on the gain under Internal Revenue Code (IRC) §1031 or §1033 and, at the time of closing, the property is eligible for such treatment;
- The non-exempt transferor has completed Part A of Form WC stating that they have received advice from a tax professional that there is no tax estimated to be due because the conveyance is:
- The sale of a principal residence and all of the gain qualifies for exclusion under IRC §121.
- A transfer to a corporation controlled by the transferor for purposes of IRC §351.
- A transfer pursuant to a tax-free reorganization under IRC §361.
- A transfer by a tax-exempt entity for purposes of IRC §501(a) and the transfer does not give rise to unrelated business taxable income under IRC §512.
- A transfer to a partnership in exchange for an interest in the partnership such that no gain or loss is recognized under IRC §721.
- Between spouses or is incident to divorce for purposes of IRC §1041.
- A transfer where the transferor is conveying the property subject to a mortgage, trust deed or land sale contract to a mortgagee, trust deed beneficiary, or land sale contract vendor as part of a foreclosure action, a non-judicial foreclosure, or forfeiture proceeding, or a transfer by a mortgagor, trust deed grantor, or land sales contract vendee in lieu of a foreclosure, with no additional consideration.
- A transfer that results in zero gain or a loss and there is expected to be no tax owed on the conveyance.
- Fully exempt from the recognition of gain under ORS chapter 316, 317, or 318 as explained to the department in writing at the time the transaction is completed.
10. What is the procedure for a non-exempt transferor with an exempt transfer where a tax payment is not required?
If a tax payment is not required because the non-exempt transferor is claiming that the sale will not result in any Oregon tax, they must complete Part A of Form WC and give a complete explanation of why the gain is not taxed. The transferor must include the amount of gain or loss, the related IRC, and any other details explaining their determination.
If the seller is claiming there will be no tax on the gain because all of the gain qualifies for the federal exclusion for sale of a principal residence under IRC § 121, the seller can complete Part A of Form WC or give you a written assurance as described on page 4 of the instructions for Tax Payments on Real Property Conveyances.
11. How can I get forms and instructions?
Click here for Form OR-18 and instructions or call us at 1-800-356-4222 in Oregon, or 503-378-4988.
12. Who is responsible for completing the forms related to this new law?
Each nonresident individual or C corporation transferor is responsible for completing Form WC and submitting it to you, the authorized agent. You will submit Form WC to the department. If the owner is not exempt, a tax payment is required and you, as the authorized agent, are responsible for completing Form OR-18 and providing a copy to the transferor. You are also responsible for completing and sending us payment voucher TPV with the payment. Do not send us Form OR-18 unless we request it.
13. What form do sellers use to certify they are exempt from the tax payment requirement?
There is no Department of Revenue form for exempt transferors. Non-exempt transferors must complete and sign Form WC to certify under penalty of perjury that they have an exempt transfer.
14. Does the law always require a tax payment when the sellers do not qualify for any of the exemptions?
Yes, if the seller is not an exempt transferor or the sale is not an exempt transfer a payment is required. However, even if the seller does not meet an exemption, the calculation of payment may still result in zero withholding. For example, if a property is highly leveraged (e.g., the debt on the property is equal to the sales price plus ordinary closing costs), no payment is required because net proceeds disbursed to the seller would be zero (Form WC, line 3).
15. Is the real estate escrow agent responsible to verify any of the amounts shown on the department forms filled out by the transferor?
No. You, the authorized agent, are not responsible to verify what the non-exempt transferor claims on Form WC. The non-exempt transferor is certifying under penalty of perjury that the statements he or she is making are true and they are responsible for any false statements on that form. If a payment is required, you are responsible for the information on Form OR-18 for the transferor and submitting the voucher TPV and payment to us. You also may be responsible for showing why you did not submit a payment for the conveyance if asked by the department.
16. Can sellers who have a lower tax liability apply for a reduced payment?
No. The non-exempt transferor cannot offset gain from the sale with other items to reduce the payment required. They may however, be eligible for a refund after they file their return.
17. Does the law require a tax payment on the sale of a principal residence?
Yes, but only on the amount of gain that exceeds the federal exclusion amount (taxable gain). For joint filers, the exclusion is $500,000. For all others, it is $250,000. Use Form WC to compute the correct amount of the payment by showing the gain exclusion for IRC § 121 on Line 8.
18. Once the Form WC is completed, should it be sent to the department?
Yes, you will submit this form to the department as indicated in the instructions.
19. Why don't you have a form with check boxes for different exemptions any more?
The law was changed and it no longer requires those not subject to the law (exempt transferors) to certify that they are exempt. Some title companies and their authorized agents have decided to create their own form since they are required to submit tax payments unless a seller is an exempt transferor. If you decide to have the seller sign a statement that they are not subject to the payment requirements, you may keep this statement with your records. You are not required to send that statement to us.
20. What if a seller tells me, the authorized agent, that they are an Oregon resident, but I have doubts?
You are responsible for submitting tax payments on all non-exempt transferors. Because of this requirement some authorized agents have chosen to have exempt transferors sign a form or provide documents showing that they are an exempt transferor.
These authorized agents have kept this evidence as proof of why they did not submit a payment. We have generally accepted this as showing due diligence. If you choose to do this, you may want to keep this with your records in case we ask for evidence of why you did not submit a payment of tax or have the taxpayer complete Form WC. If you have doubts that the seller is being truthful, you have the option of sending any evidence or information to us. If you choose to do so, please clearly state why you are sending the information to us.
21. What should I do if a seller refuses to fill out the appropriate forms, or give me enough information so that I will know how much to submit?
When a seller does not fill out the required forms or is otherwise uncooperative so that you are not able to determine how much (or if) you are required to submit a payment, you must withhold 4% of the consideration, or if less, all of the net proceeds.