280-RICR-20-10-1
280-RICR-20-10-1. Withholding Tax on the Sale of Real Property by Nonresidents (version Technical Revision, 11/30/2017 to 01/04/2022)
1.1 Purpose
The purpose of this Part is
to implement R.I. Gen. Laws § 44-30-71.3 which provides for
withholding of income tax on the sale of real estate by nonresidents.
1.2 Authority
These rules and regulations
are promulgated pursuant to R.I. Gen. Laws §§ 44-1-4 and 44-30-95.
The rules and regulations have been prepared in accordance with the
requirements of R.I. Gen. Laws §§ 42-35-1 et seq . of the
Rhode Island Administrative Procedures Act.
1.3 Application
These rules and regulation
shall be liberally construed so as to permit the Division of Taxation
the authority to effectuate the purpose of R.I. Gen. Title 44 and
other applicable state laws and regulations.
1.4 Severability
If any provision of these
rules and regulations, or the application thereof to any person or
circumstances, is held invalid by a court of competent jurisdiction,
the validity of the remainder of the rules and regulations shall not
be impaired or affected thereby.
1.5 Definitions
A. “Nonresident corporation”
means, for purposes of this regulation, a corporation that is neither
incorporated in this state nor authorized by the Secretary of State,
Board of Bank Incorporation or Insurance Division of the Department
of Business Regulation to do business in this state.
B. “Nonresident individual”
means an individual who does not meet the definition of "resident
individual" under R.I. Gen. Laws § 44-30-5. That section
defines "resident individual" as one who is domiciled in
this state or as one who is not domiciled in this state but maintains
a permanent place of abode in this state and is in this state for an
aggregate of more than one hundred eighty three (183) days of the
taxable year, unless the individual is in the Armed Forces of the
United States. If up to and including the closing date of sale an
individual is a resident of this state but intends to move to another
state immediately after the closing, that individual shall be deemed
a resident individual for purposes of R.I. Gen. Laws § 44-30-71.3
only.
C. “Nonresident partnership”
means a partnership in which any one of its partners is a nonresident
individual, estate, trust or corporation.
D. “Nonresident estate or
trust” shall be determined in accordance with the provisions of
R.I. Gen. Laws § 44-30-5.
E. “Total amount paid”
means the net proceeds of the sale actually paid to the nonresident
seller including the fair market value of any property transferred to
the seller.
F. “Net proceeds” means
the amount actually paid to the seller at the closing, i.e., the
total sales price less mortgages, liens and selling expenses such as
real estate commissions, attorney's fees, real estate conveyance tax
stamps and termite, heating, radon, or other inspection fees required
of the seller. Only mortgages and liens on the property being sold
may be deducted from the sales price.
G. “Gain” means, in
general, the excess of sales price over the seller's cost or other
basis as determined in accordance with the Internal Revenue Code
sections and applicable Rhode Island tax law and pertaining to the
seller and to the seller's tax year in which the sale occurs.
H. “Gain method” means
that special method by which withholding is made for a nonresident
seller when the nonresident seller has not only filed an election
with the Division of Taxation (Form RI 71.3 Election) to have
withholding based on gain but also has received a Certificate of
Withholding Due (Form RI 71.3 Certificate) from the Division of
Taxation for presentation at the closing. Refer to the Compliance
provisions below.
I. “Tax-exempt organization”
means the seller is exempt from taxation by Rhode Island charter or
by specific authorization as a tax-exempt organization under Internal
Revenue Code section 501(c). Nonresident organizations holding IRC
501(c) status but which have unrelated business income tax due for
this transaction, are subject to the provisions of R.I. Gen. Laws §
44-30-71.3.
1.6 GENERAL
A. Effective January 1, 1992,
when Rhode Island realty and associated tangible personality is sold
by a nonresident, the buyer must deduct and withhold six percent (6%)
of the total amount paid or gain to the seller if the seller is a
nonresident individual, estate, partnership or trust and seven
percent (7%) of the total amount paid or gain if the seller is a
nonresident corporation. The buyer then must pay the amount withheld
to the Division of Taxation within three (3) banking days after the
date closing.
B. Every buyer subject to
these provisions is liable for the amount withheld or required to be
withheld and the amount shall, until paid, constitute a lien on the
property. Said lien shall be subordinate to any mortgage of any
lender other than the seller granted in connection with the purchase
of the property. Filing and paying the amount of withholding due will
automatically discharge the lien under R.I. Gen. Laws §
44-30-71.3.
1.7 Compliance
A. Residency affidavit: The
buyer may rely on the seller's determination of residency only if the
seller furnishes the buyer with a notarized seller's residency
affidavit under penalties of perjury. A recitation of the seller's
residency may be contained on the deed. If a deed contains a
recitation of residency by the seller, the recording of such deed
shall in all instances discharge the lien imposed by R.I. Gen. Laws §
44-30-71.3(c).
1. If a buyer has actual
knowledge that a seller's residency affidavit is false and the buyer
fails to withhold the prescribed amount, the buyer is liable for an
amount equal to the amount which should have been withheld, together
with penalty and interest and a lien shall arise upon the recording
of a notice of lien by the Division of Taxation. Provided, however,
notice of lien may only be filed if title to said property remains in
the name of the buyer.
2. If, upon examination of
title during a subsequent sale of the property, a recital of
residency is not found in the deed and the affidavit of residency
cannot be obtained from the prior seller, the prospective buyer or
examining attorney may petition the tax administrator for a discharge
of the lien based upon other indicia of residency or no tax due.
B. Nonresident corporation: If
the seller is a nonresident corporation, the buyer is deemed to be in
compliance with remittance requirements if the seller provides the
buyer with a letter of good standing issued by the Tax Administrator
for the purposes of the sale. If a letter of good standing was
provided the buyer should complete the remittance form, indicate the
appropriate information on the form and return the form to the
Division of Taxation even though no tax is withheld.
C. Pass-through entity: In the
case of a pass-through entity-seller, the buyer may rely on each
seller member's determination of residency only if each seller-member
furnishes the buyer with a notarized seller's residency affidavit
under penalties of perjury. For each nonresident member, the buyer
must withhold and remit for each such member based on the member's
share. It is assumed that the members share equally unless otherwise
specifically provided. The nonresident pass-through entity-seller
must furnish the buyer with the names, addresses and Social Security
or Federal employer identification numbers for each nonresident
member. In the event that all the members are residents, a single
seller's residency affidavit may be filed using the special area
provided on that form.
D. Compliance using "gain"
method: The buyer must withhold for the nonresident seller using the
net proceeds unless, at the closing, the seller provides a
Certificate of Withholding Due (Form RI 71.3 Certificate) at the
closing. This certificate allows the buyer to withhold based on the
nonresident seller's election of the gain method.
1. In order to use the gain
method, the nonresident seller must first make the election by
completing RI Form 71.3 Election and submit the completed form to the
Division of Taxation for review at least twenty (20) days prior to
the closing date. An approved Certificate of Withholding Due shall be
sent to the seller or designee.
2. Election of gain method is
binding upon seller. Failure to make the election at least twenty
(20) days prior to the closing will result in withholding based on
net proceeds. In the event of multiple sellers, all sellers must
agree and elect the gain method or the net proceeds will be used for
remittance.
3. Election of gain method
allows the seller to recognize all the gain in the year of the sale
or to allow the seller to recognize the gain on the installment
method. Recognition of gain under either method may only be elected
by the seller if, for the same transaction and tax year, the seller
will be recognizing the gain by the same method for Federal tax
purposes.
E. Remittance limited to net
proceeds: If the withholding due under the gain method approved by
the Division of Taxation on the Certificate of Withholding Due is
more than the net proceeds payable to the seller, the buyer need only
remit the net proceeds to the Division of Taxation.
F. Information to be submitted
for installment sales method of gain election: If the seller elects
the installment sale method for R.I. Gen. Laws § 44-71.3
withholding, the installment sale method must also be the method used
by the seller for gain recognition for Federal tax purposes. The
information which must be supplied as part of the form RI 71-3
Election for the installment sales method must be supplied under
penalties of perjury by the seller, the seller's certified public
accountant, licensed public accountant or attorney and must include
the following:
1. Name, address and number
(FEI # or SS#) of each seller; and
2. Description of the property
involved (including street address, city/town and plat and lot
numbers); and
3. Calculation of gain for the
property including the gross sales price of the real estate and
related personal property, expenses of sale, the net sales price, the
seller's cost or other basis and the resultant gain; and
4. A statement that the seller
will be recognizing the gain from the sale of the stated property on
the installment method for Federal tax purposes; and
5. An amortization schedule
for the term of the installment sale itemizing the amount and timing
of each installment payment (monthly, quarterly, etc.), the interest
rate (if financed), the term of the installment sale, and the amount
of each payment which represents interest (if any), return of basis
and gain; and
6. A calculation of the amount
of gain which will not be recognized by the seller for the year of
the sale to be entered on Line 6 of the RI 71.3 Election form.
7. Withholding using the
installment method must be calculated to include the gain portions of
all installments payments to be received for the year of the sale as
well as the gain portion of the payment received at the closing.
8. By election of the
installment method the seller agrees to make such estimated payments
and to file all appropriate Rhode Island tax returns for years
following the year of sale during which any installment payments from
this transaction are received.
G. Compliance for special
cases: In the event that the sale of the property by a nonresident
will not be subject to tax under Sections 121 (Sale of Principal
Residence); 721 (Tax Free Exchanges - Partnership Interest); 1031
(Like Kind Exchanges); 1033 (Involuntary Conversions), or 408
(Individual Retirement Account) of the Internal Revenue Code, the
nonresident seller must make the gain election and file the RI Form
71.3 Election even though no withholding need be made. If the seller
later fails to comply with the above sections of the Internal Revenue
Code, the seller acknowledges obligation to file an original or
amended Rhode Island tax return for the year of the sale.
H. Zero withholding: A
nonresident real estate withholding remittance form (RI 71.3
Remittance) must be completed for the nonresident and sent to the
Division even though the results of the withholding calculation are
that no withholding is to be made for the nonresident seller.
1.8 Multiple Sellers
A. No matter how the sellers
hold their interests in the property, if there is more than one name
on the deed, there are multiple sellers. Thus, forms of ownership
such as tenancy by the entirety; tenancy in common and joint tenancy
all indicate multiple sellers.
B. The buyer must either
obtain seller's residency affidavits from each of the multiple
sellers, or for each nonresident seller, withhold and remit for each
nonresident seller separately. If sellers are married and will file a
joint RI income tax return, they should so indicate on Form RI 71.3
Remittance and Form RI 71.3 Election.
C. Unless otherwise provided,
it is assumed that each of the multiple sellers share equally in the
net proceeds for the purposes of calculating amounts to be withheld.
D. A pass-through entity must
comply and either obtain seller's residency affidavits from each
member or, for each nonresident member, withhold and remit for such
nonresident member based on the member's share. It is assumed that
the members share equally unless otherwise specifically provided.
1.9 Computation
A. General: In accordance with
the above, the buyer must deduct and withhold six percent (6%) of the
net proceeds or gain to the seller if the seller is a nonresident
individual, estate, partnership or trust and seven percent (7%) of
the net proceeds or gain if the seller is a nonresident corporation.
If there are multiple sellers, the buyer must compute and withhold
for each seller separately.
B. EXAMPLES:
1. Net Proceeds Method:
a. Joseph Smith and Andrew
David (both nonresidents) are selling a summer house in Rhode Island
for $175,000, the proceeds to be shared equally, and they have not
elected withholding based on gain. At the closing, cash at settlement
to the nonresident sellers is $170,000 and the buyer withholds six
percent (6%) or $10,200. The buyer then remits to the Division of
Taxation using form RI-71.3 Remittance. Since there are multiple
sellers, the buyer attaches a schedule listing both nonresidents'
names, addresses and social security numbers so that the nonresidents
may take proper credit for the amounts withheld when they file their
Rhode Island personal income tax returns for the year of the sale.
b. In the example above, if
Joseph was a resident and gave a residency affidavit to the buyer at
the closing, the buyer would only withhold and remit $5,100 to the
Division of Taxation calculated as 1/2 x $170,000 or $85,000 @ 6% =
$5,100.
2. Gain Method:
a. Martha Martinez (a
nonresident) is selling property in Rhode Island and, 20 days before
the closing, elects the gain method of withholding by computing the
RI 71.3 Election form and sending it to the Division of Taxation. The
form, when reviewed by the Division of Taxation lists the following:
Sales
Price
$
200,000
Less
Expenses of Sale
$
21,000
Net
Sales Price
$
179,000
Less
Cost/Basis
$
71,000
GAIN
$
108,000
b. Since all of the gain is
being taxed in the year of the sale for Federal purposes, the
withholding indicated was 6% x $108,000 = $6,480. The Division
reviewed the Election, indicated the $6,480 as the amount to be
withheld on the RI 71.3 Certificate and returned the certificate to
Martha. At the closing, the certificate was presented, $6,480 was
withheld and remitted by the buyer using the form RI 71.3 Remittance.
The original copy of the approved certificate of withholding due (RI
71.3 certificate) should be attached to the form RI 71.3 Remittance
when filed.
c. If the property Martha was
selling was her residence and if she otherwise qualified and intends
to treat the sale under Section 121 of the Internal Revenue Code, she
would still have to file the election form 20 days before the closing
but would complete the election form and use the special types of
transactions area on the back. The Division would review the election
and, when approved, would send a certificate of withholding due (RI
71.3 certificate) indicating $0 to be withheld at the closing.
3. Installment sales method:
a. High Ridge Properties is a
nonresident partnership selling property In Rhode Island. More than
twenty (20) days prior to the closing the partnership elects to have
the withholding based on gain by completing the RI 71.3 Election
form. Additionally, the partnership will be treating the gain from
the sale on the installment method for Federal purposes and,
therefore, the partnership prepared and furnished a complete
installment sale schedule with the Election form. The installment
sale schedule showed total gain of $42,000 that 12% of each principal
payment in Rhode Island received from the buyer was the gain to be
recognized that High Ridge expects to receive $20,000 at the closing
and that two (2) payments are to be received in the year of sale. In
these two (2) payments, the principal portions total $1,000. The
installment sale schedule's calculation then indicated the amount of
gain to be recognized in the year of sale to be:
(1) Gain Percentage = 12%
Principal Payment Received
during year of sale = $21,000.
Gain to be recognized during
year of sale = $21,000 x 12%=$2,520.
The amount of non-recognized
gain to be entered on Line 6 = $42,000 - $2,520 = $39,480
Thus, the amount to be
withheld is 6% x $2,520 = $151.20.
(2) High Ridge also sends a
calculation of how much withholding is to be made for each
nonresident partner. After review, the Division of Taxation returns
an approved certificate of withholding due (RI 71.3 Certificate) to
the seller for use at the closing. The buyer uses the certificate to
complete the remittance form (RI 71.3 Remittance) and sends the
remittance, the approved original of the Certificate of Withholding
Due, the check and, since High Ridge is a partnership, a list of High
Ridge's nonresident partners' names, addresses, social security or
Federal employer identification numbers and withholding so that the
partners may take appropriate credit when they file their Rhode
Island tax returns.
b. If all the
partners/members/shareholder of an entity do not agree to the
election of the gain method, the net proceeds method would be used.
c. If the amount to be
withheld under the gain/installment sale method is more than the cash
settlement at the closing, the remittance is limited to the cash
settlement at the closing.
1.10 Payment
A. The buyer must remit
amounts withheld from the seller or sellers within three (3) banking
days after the date closing.
B. The buyer must remit to the
Rhode Island Division of Taxation using the RI 71.3 Remittance Form.
C. In the event of nonpayment
or late payment, interest will be computed in accordance with R.I.
Gen. Laws § 44-1-7 and added to the amount due.
D. Filing and paying the
amount of withholding due will automatically discharge the lien under
R.I. Gen. Laws § 44-30-71.3. For an acknowledgement of the lien
discharge, the buyer should complete the reverse side of the
remittance form and provide a pre-addressed envelope. The Division of
Taxation will acknowledge the lien discharge and send it to the buyer
or designee.
1.11 Liability
A. Every buyer subject to
withholding is liable for the amounts withheld or required to be
withheld. If there is more than one buyer's name on the deed, the
buyers are jointly and severally liable for compliance and
remittance.
B. If a seller gives the buyer
a fraudulent residency affidavit taken in good faith by the buyer the
seller remains liable for any tax due resulting from the sale of the
property.
C . The closing
attorney, lending institution, and real estate agent/broker in a
transaction governed by R.I. Gen. Laws §
44-30-71.3 and these regulations is not subject to the
withholding and payment provisions.
1.12 Document submission and
Retention
A. Seller's residency
affidavit: The buyer should retain the original affidavit with the
other records pertaining to the closing and must produce it for the
Division of Taxation, if requested. One copy of the affidavit should
be given to the seller. The buyer should not send the affidavit to
the Division of Taxation. If there are multiple sellers, there should
be one affidavit and copies for each nonresident seller.
B . Election to have
withholding based on gain: The seller makes this election by
completing one RI Form 71-3 Election and submitting the completed
form (and any attachments) to the Division of Taxation at least
twenty (20) days prior to the closing date. The seller should retain
a copy of the election for matching with Certificate of Withholding
Due which will be returned by the Division of Taxation.
C. Installment sale schedule:
The information which must be supplied as part of the Form RI 71.3
Election for the installment sale method must be supplied under
penalties of perjury by the seller, the seller's certified public
accountant, licensed public accountant or attorney and must include
all the information contained in § 1.7 (F) of this Part
D. Certificate of withholding
due: The Division of Taxation shall review the election (Form RI 71.3
Election) and send the approved Certificate of Withholding Due (Form
RI 71.3 Certificate) to the seller or designee. The seller must
present the certificate to the buyer at the closing and the buyer,
using the certificate, completes the remittance form and attaches the
original certificate for submission to the Division of Taxation. The
buyer and seller should each retain one copy of the certificate with
the documents of the sale.
E. Real estate withholding
remittance: The buyer should retain one copy of the remittance form
with the other records pertaining to the closing, one copy of the
remittance form should be given to the seller and the original is
sent to the Rhode Island Division of Taxation with the payment
indicated. If the remittance is being made for multiple nonresident
sellers, a schedule must be attached giving the names, addresses,
Federal employer identification numbers (FEI #) or social security
numbers (SS#) and the amount being withheld attributable to each
nonresident seller. Copies of the remittance form and supplemental
schedule should be provided for each nonresident seller in order that
appropriate credit can be taken on the nonresident seller's tax
return.
1.13 Sales/Transfers of Property
by Exempt Organizations
A. Sales/transfers of property
by organizations which are exempt from taxation under provisions of
the Internal Revenue Code, or by their charter, are exempt from the
withholding provisions of R.I. Gen. Laws §
44-30-71.3. The buyer may rely on the seller's determination
of exempt status only if seller furnishes the buyer with a notarized
Affidavit of Exempt Seller (NRWXMPT) signed under penalties of
perjury. If a deed contains a recitation of exempt status by the
seller, the recording of such deed shall in all instances discharge
the lien imposed by R.I. Gen. Laws §
44-30-71.3(c).
B. Provided, however, that
when property is sold/transferred by the following named
organizations only, no Affidavit of Exempt Seller need be executed
nor is a recital of exempt status required in the deed so long as
said exempted entities are fully identified in the granting clause of
the deed in question. Such entities include:
1. The Federal Deposit
Insurance Corporation
2. The Resolution Trust
Corporation
3. Rhode Island Housing and
Mortgage Finance Corporation
4. Board of Governors of the
Federal Reserve System
5. Federal Reserve Bank
6. Federal Home Loan Bank
7. Comptroller of the Currency
8. The Office of Thrift
Supervision
9. The National Credit Union
Administration Board
10. The Farm Credit
Administration
11. The Farm Credit System
Insurance Corporation
12. The Small Business
Administration
13. The Federal National
Mortgage Association
14. The Federal Home Loan
Mortgage Corporation
15. The Government National
Mortgage Association
1.14 Gifts
A. Bona fide gifts of property
(e.g. transfers where there is no consideration and no gain
attributed to the transferor) do not fall within the purview of R.I.
Gen. Laws § 44-30-71.3
and therefore no withholding is required. In transfers by way of
gifts the transferor may combine language in the deed stating that no
documentary stamps are required with language stating that this
transfer is by way of gift and no withholding is required under R.I.
Gen. Laws § 44-30-71.3.
1. EXAMPLE: Transfer is by
gift so that no documentary stamps are required and no withholding is
required under R.I. Gen. Laws §
44-30-71.3. If a deed contains a recitation of gift by the
seller, the recording of such deed shall in all instances discharge
the lien imposed by R.I. Gen. Laws § 44-30-71.3(c).
1.15 Intercompany
Transfers/Transfers among Affiliated Companies
Intercompany transfers or
transfers among affiliated companies which do not entail
consideration and in which no gain is recognized by the transferor or
transferee are not sales and as such do not fall within the purview
of R.I. Gen. Laws § 44-30-71.3.
In such transfers the transferor may combine language in the deed
stating that no documentary stamps are required with language that
this intercompany transfer or transfer among affiliated companies is
such that no withholding is required under R.I. Gen. Laws §
44-30-71.3. If a deed contains such a recital, the recording
of such deed shall in all instances discharge the lien imposed by
R.I. Gen. Laws § 44-30-71.3(c).
1.16 Sales/Transfers by Banks and
Insurance Companies
A. State banks, mutual savings
banks, federal savings banks, trust companies, national banking
associations, building and loan associations and credit unions,
whether or not such entities are chartered in, or have a place of
business in Rhode Island and loan and investment companies organized
under R.I. Gen. Laws Chapter 19-20 are not subject to the tax imposed
on corporations under R.I. Gen. Laws Chapter 44-11. Insurance
companies are likewise exempt from tax imposed on corporations under
R.I. Gen. Laws Chapter 44-11. Therefore, those specific types of
lending institutions and insurance companies are not subject to the
withholding provisions of R.I. Gen. Laws § 44-30-71.3 when they sell
real estate that they own. Any description in the granting clause of
the deed which sufficiently identifies those entities as one of the
entities mentioned herein is sufficient to discharge any lien imposed
pursuant to R.I. Gen. Laws §
44-30-71.3.
B. Exception - Bank
Foreclosure/deeds in Lieu of Foreclosure
1. The purchaser at a
foreclosure sale under power of sale takes, not as grantee of the
mortgagee, but as a grantee of the mortgagor. Therefore, when a bank
forecloses on a defaulting nonresident mortgagor and a third party
purchases at the foreclosure sale for an amount in excess of the sums
legally due on the mortgage, the purchaser must withhold six (6)
percent (or seven (7) percent if the mortgagor is a corporation) of
the net proceeds resulting from the sale. (Where there are net
proceeds and junior lienholders, see § 1.7 of this Part.) Provided,
however, no withholding is required if there are no net proceeds
disbursed to the mortgagor as a result of the foreclosure or deed
given in lieu of foreclosure. In those instances the foreclosure deed
or deed in lieu of foreclosure may contain a recital that the
transfer of the property was the subject of foreclosure and there
were no net proceeds subject to the withholding provisions of R.I.
Gen. Laws § 44-30-71.3.
The recording of such deed shall in all instances discharge the lien
imposed by R.I. Gen. Laws § 44-30- 71.3(c).
1.17 Receivership/Bankruptcy
In a sale by a court
appointed receiver or trustee in bankruptcy where all the proceeds of
the sale are placed in the receivership estate or bankruptcy estate
and where no proceeds are given to the nonresident debtor, no
withholding is required. A recital in the deed that the sale is by a
receiver or trustee in bankruptcy shall be sufficient to discharge
any lien under R.I. Gen. Laws §
44-30-71.3(c).
1.18 Bills of Interpleader
Where there is a foreclosure
sale on property of a defaulting nonresident mortgagor and the
mortgagee has proceeds in excess of its mortgage and there are junior
lienholders, the buyer is not required to withhold on the net
proceeds if the mortgagee intends to file a bill of interpleader
naming the Division of Taxation as a party thereto. Receipt of the
Bill of Interpleader complaint naming the Division of Taxation as a
party therein shall be sufficient to grant the buyer a discharge of
the lien imposed under R.I. Gen. Laws § 44-30-71.3(c). Provided
however, where the net proceeds accruing to the junior lienholders
are of such a nominal amount that the filing of a bill of
interpleader is not practicable and the mortgagee turns over said
nominal sum to the second mortgagee and obtains a release and
indemnification agreement from the second mortgagee, no withholding
is required. In that instance the foreclosure deed or deed in lieu of
foreclosure may contain a recital that the transfer of the property
was subject to foreclosure and there were no net proceeds subject to
withholding under R.I. Gen. Laws § 44-30-71.3. The recording of such
deed shall in all instances discharge the lien imposed by R.I. Gen.
Laws § 44-30-71.3(c).
1.19 Name on Deed for Convenience
Purpose
Where an individual claims
that his/her name is on a deed merely for convenience and will not
share in any way with the proceeds from a sale, that person may file
an affidavit to that fact under penalties of perjury. That affidavit
must contain a statement as to who is the true owner of the property
in question; why the affiant's name appears on the deed; and the name
and social security number of the person(s) who will be responsible
for claiming any gain from the sale of the property. A copy of said
affidavit must be filed with the Division of Taxation and a copy
should be given to the buyer. A recital in the deed that the Grantor
"_________'s" name was on the deed for convenience purposes
only and that an affidavit to that effect has been filed with the
Division of Taxation shall in all instances discharge the lien
imposed by R.I. Gen. Laws § 44-30-71.3(c).
1.20 Transfers of Property
Incident to Divorce
Generally, no gain or loss is
recognized on a transfer of property from an individual to (or in a
trust for the benefit of) a spouse, or a former spouse if incident to
a divorce. Any transfer of property to a spouse or former spouse on
which gain or loss is not recognized is treated by the transferee as
acquired by gift and is not considered as a sale or exchange. In that
instance, no withholding is required. See § 1.14 of this Part
"Gifts." A recital in the deed that the property was
transferred incident to divorce or by way of gift shall in all
instances discharge the lien imposed by R.I. Gen. Laws §
44-30-71.3(c). A transfer of property is incident to a divorce if
the transfer occurs within one year after the date on which the
marriage ends, or if the transfer is related to the ending of the
marriage.
1.21 Relocation Company Sales
A. In the ordinary course a
relocation company does not take legal title to real property but
merely acts as a conduit to transfer title pursuant to a contract
with the employer of the seller of the property. This regulation
pertains to situations in which the relocation company does not take
legal title. If a relocation company takes title from the grantor the
general rules for nonresident withholding apply.
B. If the sales price on real
and associated tangible property is paid or advanced to an employee
by a relocation company, withholding will be required as follows:
1. If the
employee(s)/grantor(s) is a resident of this state at the time he/she
signs the deed in blank, the relocation company may take a residency
affidavit from the employee(s) and no withholding is required from
that transaction. A recitation of residency of the grantor(s) may be
inserted in the deed stating that no withholding is required under
R.I. Gen. Laws § 44-30-71.3, since the grantor(s) was a resident of
the state at the time he/she signed the deed.
2. The buyer(s) of the
property who receives the deed through the relocation company must
receive before or simultaneously with the delivery of the deed an
affidavit from the relocation company of its intention to file a
Notice of Sale with the Division of Taxation. Said buyer(s) of the
property who receive the deed through the relocation company and all
subsequent buyers may rely upon the recitation of residency in the
deed by the employee(s)/grantor(s) and the recording of the deed
containing such recital, shall in all instances, discharge the lien
imposed by R.I. Gen. Laws §
44-30-71.3 (c).
3. In every transaction in
which a relocation company holds a deed executed by the grantor(s) in
blank, the relocation company shall file a notice of sale with the
division of taxation within five (5) working days of the transfer of
title to the buyer. That notice shall include the name and FEIN of
the relocation company; the name and FEI Number of the company which
contracted its services; the names and addresses of the buyer(s) and
seller(s) and location of the property sold; the sales price paid to
the grantor(s) by the relocation company or employer and the sales
price of the property at the time title passes. The relocation
company must present the buyer with an affidavit of intent to file a
notice of sale with the Division of Taxation.
C. If the employee/grantor is
not a resident of this state at the time the deed is executed in
blank, the relocation company must follow the withholding rules
relating to nonresidents. Upon the filing of Form 71.3 Remittance
with the remittance of the proper amount due thereunder and
submitting a completed acknowledgement of discharge form with the
grantee(s) name left blank, the acknowledgement of discharge will be
issued to the relocation company with the grantee's name left blank.
Upon the subsequent transfer of title the relocation company may
insert the name of the grantee on the discharge and give the
acknowledgement of discharge to the grantee for recording.
1.22 Sales/Transfers of Property
from the U.S. Government, Agencies of the U.S. Government, the State
of Rhode Island, its Agencies, or Political Subdivisions
Transfers/sales of property
by the above-mentioned instrumentalities are exempt from the
withholding provisions of R.I. Gen. Laws § 44-30-71.3. A deed may
contain a recital that the sale/transfer is not subject to
withholding under R.I. Gen. Laws § 44-30-71.3 since the transfer is
made by the U.S. Government, an agency of the U.S. Government, the
State of Rhode Island, or an agency or political subdivision thereof,
whichever is applicable.
1.23 Tax Sales
The redemption of real
property pursuant to R.I. Gen. Laws Chapter 44-9 shall not be subject
to the withholding provisions of R.I. Gen. Laws §
44-30-71.3. In the event real property is redeemed pursuant to
R.I. Gen. Laws Chapter 44- 9, the deed may contain a recital that no
withholding under R.I. Gen. Laws §
44-30-71.3 is required because title is transferred pursuant
to statutory redemption. Said recital shall in all instances
discharge the lien imposed by R.I. Gen. Laws § sub 44-30-71.3(c).
1.24 Remittance Limited to Cash
Paid at Closing
In no event shall the buyer
be required to remit any amount in excess of the amount of the cash
settlement received by the seller.
1.25 Limited Liability Companies
A. A limited liability company
is required by law to declare in its articles of organization whether
it is to be treated as a corporation or as a partnership for purposes
of taxation.
1. Taxed as Corporation: If a
limited liability company has declared to be taxed as a corporation,
and either
a. the limited liability
company is formed pursuant to R.I. Gen. Laws Chapter 7-16; or
b. the limited liability
company is registered with this state as a foreign limited liability
company pursuant to R.I. Gen. Laws §
7-16-49, the limited liability is considered a resident
limited liability company and no withholding is required and a buyer
may accept a residency affidavit from the limited liability company.
c. If a limited liability
company is deemed to be a nonresident the buyer must withhold at
seven percent (7%) unless the nonresident limited liability company
produces a letter of good standing issued by the Division of Taxation
for purposes of the sale. See § 1.7 (B) of this Part.
2. Taxed as Partnership: If a
limited liability company has declared to be taxed as a partnership,
the provisions of § 1.7(C) of this Part applies whether or not the
limited liability company is formed pursuant to R.I. Gen. Laws
Chapter 7-16 Laws or is registered with this state pursuant to R.I.
Gen. Laws § 7-16-49.
3. Single Member Limited
Liability Company (SMLLC) is a disregarded entity and the withholding
requirements apply to the single member of such an entity.