Oregon Administrative Rules
Chapter 150 - DEPARTMENT OF REVENUE
Division 314 - INCOME TAXATION GENERALLY GENERAL PROVISIONS
Section 150-314-0040 - Withholding on Real Property Conveyances
Universal Citation: OR Admin Rules 150-314-0040
Current through Register Vol. 63, No. 9, September 1, 2024
(1) For purposes of ORS 314.258 and this rule:
(a) "Authorized agent" does not include an
employee of a transferee who merely makes payments to a transferor in
connection with a conveyance, nor a person who performs services such as
inspections, appraisals, drafting services, and recording services performed
for the benefit of a transferor or transferee in a conveyance.
(b) "Consideration" includes any encumbrance
that the transferee agrees to pay or assume as well as the fair market value of
any property conveyed or transferred to a transferor, or the fair market value
of any service provided to a transferor.
(2) Withholding requirements. Except as provided in subsection (2)(a) of this rule, an authorized agent must withhold tax for the year in which income is recognized for Oregon tax purposes and remit the tax withheld to the department.
(a)
An authorized agent is not required to withhold if:
(A) The withholding amount calculated is less
than $100 per transferor;
(B) The
total consideration for the property is less than or equal to $100,000;
(C) The person making a conveyance
is a resident of Oregon as defined in ORS
316.027 on the closing date of
the conveyance;
(D) The person
making a conveyance is a C-Corporation that is qualified to do business in
Oregon on the closing date of the conveyance;
(E) The transferor delivers to the authorized
agent a written assurance as required in IRC section 6045(e) that the entire
gain qualifies for exclusion under IRC section 121;
(F) The transferor is an estate, certain
trusts, S corporation, general partnership, or limited partnership, or a
limited liability company that for purposes of Treasury Regulation section
301.7701-3 has not elected to be classified as an association taxable as a
corporation and is not a disregarded entity the sole member of which is a
transferor within the meaning of ORS
314.258(1)(f);
(G) The transferor is an entity
not described in ORS 314.258(1)(f),
such as a government agency or instrumentality, or a municipal or public
corporation;
(H) The authorized
agent is an attorney involved in a transaction where a licensed escrow agent is
providing services for the conveyance; or
(I) The transferor or the transferor's tax
advisor executes a written affirmation under penalty of perjury that the
conveyance is not likely to be taxable to the transferor under Oregon law
during the tax year of the transferor in which the conveyance occurs. Examples
of such transactions include, but are not limited to, a conveyance that
constitutes or is accomplished as part of:
(i) A transfer that is the sale of a
principal residence and the gain qualifies for exclusion under IRC section 121;
(ii) A transfer to a corporation
controlled by the transferor for purposes of IRC section 351;
(iii) A transfer pursuant to a tax-free
reorganization under IRC section 361;
(iv) A transfer by a tax-exempt entity that
does not give rise to unrelated business taxable income to the transferor under
IRC section 512;
(v) A transfer to
a partnership in exchange for an interest in the partnership such that no gain
or loss is recognized under IRC section 721;
(vi) A transfer that qualifies for
nonrecognition under IRC section 1031 or 1033 and the transferor enters into
such a transaction;
(vii) A
transfer between spouses or incident to divorce for purposes of IRC section
1041; or
(viii) Any other
transaction in which gain is not recognized for purposes of ORS Chapters 316,
317, and 318, as explained to the department in writing at the time the
transaction is completed.
(b) The authorized agent must send the tax
withheld to the department within 20 days of the date the proceeds from the
conveyance are disbursed to the transferor.
(c) If there is more than one transferor for
one parcel, the authorized agent must withhold tax on each non-exempt
transferor as if all transferors had equal ownership in the real property
unless the transferor establishes to the authorized agent the actual ownership
percentage in the real property, such as through recorded documents,
tenancy-in-common agreements, or other documents. If the transferor establishes
other than equal ownership, the authorized agent must withhold in proportion to
each non-exempt transferor's actual ownership percentage in the real property.
(d) A transferor may claim the
amount withheld by an authorized agent as a credit on the transferor's
corresponding personal income tax return or corporate income or excise tax
return.
(e) If the transferor is a
limited liability company, the sole member of which is a transferor within the
meaning of ORS 314.258(1)(f)
(2008), and the limited liability company is
a disregarded entity for federal income tax purposes, the transferor is the
single member for purposes of this rule.
(3) Calculation of amount to be withheld.
(a) An authorized agent is required to
withhold from the consideration payable to the transferor and remit to the
department the least of:
(A) Four percent of
the consideration for the real property;
(B) Eight percent of the amount of gain on
the conveyance that is includable in the transferor's Oregon taxable income; or
(C) The net proceeds from the
conveyance.
(b) A
transferor subject to withholding must deliver to an authorized agent at or
before conveyance of the real property a written affirmation, signed under
penalty of perjury, identifying the amount of withholding required by
subsection (a) of this section. If the transferor fails to deliver the form
timely, the authorized agent must withhold four percent of the amount of
consideration, or if less, all the net proceeds.
Example
1: Anne sold her rental property for $300,000. Her federal and
Oregon adjusted basis in the property is $250,000. She has an outstanding
mortgage against the property of $157,000 and closing costs are $3,350. At
closing, she determines she is not exempt from withholding so her escrow
officer must withhold tax based on the least of four percent of the
consideration, eight percent of the gain includable in Oregon taxable income,
or all of the net proceeds.
Step 1) Determine four percent of the consideration. In this case, it is $12,000 ($300,000 x 0.04 = $12,000).
Step 2) Determine eight percent of the gain includable in Oregon taxable income as follows:
$300,000 Consideration less
$250,000 Federal and Oregon adjusted basis equals
$50,000 Gain
$4,000 ($50,000 x 0.08 = $4,000) is eight percent of the gain.
Step 3) Determine the "net proceeds" as follows:
$139,650 Net amount disbursed to seller ($300,000 consideration - $157,000 mortgage - $3,350 closing costs = $139,650) $139,650 is the "net proceeds" from this conveyance.
Step 4) Because eight percent of the gain ($4,000) is the lowest of the amounts calculated in steps one, two, or three, Anne's escrow officer would withhold and remit $4,000.
(c) Installment sales. If a transferor elects
to recognize income from the conveyance using the installment method under IRC
section 453, the transferor may reduce the gain by the amount of the
installment that will be recognized in future years. The withholding
calculation is based on the entire consideration and net proceeds, or the
modified gain to determine the lowest of the three methods provided in
subsection (a) of this section.
Example 2:
Assume the same facts as Example 1 except that Anne is selling the property on
an installment basis and recognizing the income from the sale using the
installment method under IRC section 453 over five years in equal installments.
Because Anne is selling the property over time, the amount of gain includable
in Oregon taxable income is $10,000 for the year of the conveyance ($50,000
Ãf· 5 years = $10,000) and $10,000 in each year thereafter. Eight
percent of the amount included in Oregon taxable income is $800. Anne's escrow
officer would withhold and remit $800 for the year of the conveyance because it
is the least amount using the three methods provided in subsection (a) of this
section.
(d) Deferred
exchanges. If a transferor enters into a like-kind exchange under IRC section
1031, withholding is not necessary at the time the transferor relinquishes the
property to a Qualified Intermediary (QI) unless part of the proceeds from the
sale are disbursed to the transferor.
Example
3: Robert entered into an exchange under IRC section 1031 to defer
tax on the gain from the sale of his rental property. The consideration for the
property was $500,000. Robert's federal and Oregon adjusted basis in the
property is $150,000. He holds a first mortgage of $190,000 and he incurred
$10,000 in costs related to the conveyance. Robert requested $50,000 from the
consideration directly. Robert's escrow officer transferred title of the
property and $250,000 of the consideration to a QI and the escrow officer
disbursed $50,000 directly to Robert as requested. The escrow officer is
required to withhold on the amount disbursed to Robert as follows:
Step 1) Determine four percent of the consideration. In this case, it is $20,000 ($500,000 x 0.04 = $20,000).
Step 2) Determine eight percent of the gain includable in Oregon taxable income as follows:
$500,000 Consideration
$150,000 Federal and Oregon adjusted basis
$350,000 Gain
$300,000 Gain eligible for deferral under IRC section 1031
$50,000 gain includable in Oregon taxable income.
Eight percent of the gain is $4,000.
Step 3) Determine the "net proceeds" as follows:
$50,000 Net amount disbursed to seller shown on the settlement statement before reducing for withholding.
Step 4) The lowest of the amounts calculated in steps one, two, or three is $4,000 (8 percent of the gain). Robert's escrow officer would withhold and remit $4,000.
(4) Written affirmation.
(a)
(A) To
claim exemption under subparagraph (2)(a)(I) of this rule, the transferor or
the transferor's tax advisor must complete and sign a written affirmation under
penalty of perjury, that the transferor is exempt from withholding because the
transferor is unlikely to owe Oregon tax as a result of the conveyance, before
the funds related to the transaction are disbursed.
(B) To determine whether the transferor is
unlikely to owe Oregon income tax as a result of the conveyance, the gain may
not be offset against any other items of gain, loss, deduction, or credit the
transferor expects to claim on the related tax return unless the item is
directly related to the conveyance. For example, if an Oregon nonresident must
pay tax on the gain from the sale of the Oregon property to both Oregon and the
state of residency, and the Oregon nonresident must claim the credit for taxes
paid to the state of residency on the Oregon nonresident return, the transferor
established that he or she is unlikely to owe Oregon tax as a result of the
conveyance.
(C) The transferor
must provide the completed written affirmation to the authorized agent
providing closing and settlement services.
(b) Basing withholding on the amount of
includible gain. If the transferor is subject to withholding, the transferor
may calculate tax based on the amount of gain includible in Oregon taxable
income. The transferor must complete and sign the written affirmation under
penalty of perjury that the calculation is true and accurate to the best of the
transferor's knowledge.
(c) Sale
of a principal residence. The gain from the sale of a principal residence may
qualify for exemption from withholding under either ORS
314.258(3)(e)
or 314.258(3)(f).
If the transferor is eligible to exclude the entire gain under IRC section 121,
they must complete a written assurance similar to that found in IRC section
6045(e) pursuant to 314.258(3)(e) and this rule. If the transferor completes
the written assurance, it is in lieu of the written affirmation required under
314.258(3)(f) and subsection (4)(a) of this rule and the transferor need not
complete the written affirmation. However, the authorized agent must provide
the information contained in the written assurance in the same manner as
information contained in the written affirmation. If the gain is not fully
excludible under IRC section 121, the transferor must complete the written
affirmation calculating the gain under penalty of perjury.
(d) In addition to retaining the completed
written affirmation or assurance in the authorized agent's records, the
authorized agent must send a copy of the affirmation or assurance to the
department within 30 days of the date of the conveyance.
(5) Failure to withhold.
(a) An authorized agent who relies on the
written representation made by the transferor that the transferor is either
exempt from or not subject to withholding, is not liable for amounts required
to be withheld under ORS
314.258. An authorized agent who
relies on the calculation shown on the written affirmation provided by the
transferor is not liable for the amount that was required to be withheld in
excess of that shown on the written affirmation. The transferor is liable for
the tax and may be subject to interest charged on the underpayment of estimated
tax.
(b) Penalty assessment. The
department may assess a failure-to-withhold penalty if an authorized agent
fails to demonstrate to the department's satisfaction that the authorized agent
met the requirements of ORS
314.258.
(A) For conveyances that occurred before May
23, 2008, the department will not assess the failure-to-withhold penalty if an
authorized agent met the requirements of either ORS
314.258(2007)
or 314.258(2008).
(B) For conveyances that occurred
on or after May 23, 2008, the department will not assess the
failure-to-withhold penalty if an authorized agent met the requirements of ORS
314.258(2008)
and related rules.
(6) Failure to remit. If an authorized agent withholds tax from the transferor's disbursal and fails to remit the same amount to the department timely, the authorized agent is liable to the State of Oregon for those amounts. The department may collect such amounts from the authorized agent together with interest under ORS 305.220.
Tables referenced are available from the agency.
Stat. Auth.: ORS 305.100 & 314.258
Stats. Implemented: ORS 314.258
Disclaimer: These regulations may not be the most recent version. Oregon may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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