DATE: July 22, 2008
TO: All Real Estate Licensees
FROM: Gordon Henderson, Chairman
RE: Act 2008-504 Withholding Tax at Closing on Sale by Nonresident Seller
The purpose of this memorandum is to state this new statute has no effect on real estate licensees regarding real estate license law compliance. This act requires a withholding tax to be paid by the buyer at closing on any sale or transfer by a nonresident seller of real property located in Alabama. The act is effective on August 1, 2008. The withholding is to be paid to the Alabama Department of Revenue who is developing rules and forms to be used for compliance.
The Alabama Real Estate Commission only has authority to enforce the Alabama Real Estate License Law. The Commission will not be involved in any manner in the implementation or enforcement of this withholding tax. The only area of the real estate license law in question that should need clarification is the requirement to provide sellers and buyers with an estimate of their closing costs. This requirement is found in Alabama Real Estate Commission Rule 790-X-3-.04. The requirements of this rule shall not include this new withholding tax as a cost to be itemized in the estimated closing costs. The closing costs covered under this rule only include those directly contained in the contract and mortgage lending process of a sale, and will not include this withholding tax. Real Estate Commission auditors will not be checking to see this withholding tax on an estimated closing statement.
M E M O R A N D U M
Date: July 22, 2008
To: AAR Executive Committee, Brokers, Governmental and Political
Affairs Committee, Local Board Presidents, and Association Executives
From: Joe Rhodes, AAR President-Elect and Chair of G&PA Committee
RE: Concerning Withholding Tax for Nonresident Sellers
This is to clarify requirements for REALTORS® representing nonresident sellers of real property of $800,000 or above and for REALTORS® representing buyers of real property located in Alabama and owned by a nonresident with a sales price of $800,000 or above.
The attached notice to members provides information and contact information for the Department of Revenue regarding this new withholding requirement which begins August 1, 2008. The tax is not new. The collection procedure is new.
The Alabama Association of REALTORS® began discussions with the Alabama Department of Revenue on July 17th, 2008 to discuss purchase price thresholds, withholding procedures, rules, etc. The Department has held meetings with closing attorneys and title companies this week and last week. The AAR Executive Committee met with Revenue Commissioner Tim Russell and four members of his senior staff for three hours on Monday, July, 21, 2008. The Commissioner was very amenable to our requests regarding implementation of the law. We were successful in working with the Commissioner to raise the sales price threshold from $200,000 to $800,000 and for a five month period for education and understanding for those involved in nonresident transactions to become familiar with the requirements of this new withholding law.
AAR has asked the Alabama Real Estate Commission to issue confirmation to brokers that there will be no new requirement placed on licensees by the Commission due to this law. Additionally AAR has asked the Commission to provide the enclosed information to all CE instructors for the balance of this license period and particularly risk management classes.
So, AAR in looking forward is developing a broader procedure for bill review. We will have a draft policy for bill review for the Governmental and Political Affairs Committee to consider at its September meeting.
For Additional Details and Specifics Concerning This New Tax Withholding Law, Contact the Alabama Department of Revenue at 334-242-1101 and/or Visit www.alabama.revenue.gov.
New Tax Witholding Requirement
Effective August 1st
§40-18-86 Code of Alabama
1. The Alabama Legislature has enacted a new law that requires Buyers to withhold 3-4% of the proceeds from the sale or transfer of real estate by non-residents of the State of Alabama. The new law goes into effect August 1st and applies to transactions with a sales price of $800,000.00and above.
2. This is not a new tax but a new collection mechanism approved by the Alabama Legislature. The money is required to be withheld by the Buyer in order to collect the capital gains tax owed by a non-resident seller to the State of Alabama.
3. Alabama Department of Revenue has adopted interim guidelines, procedures, and forms for the enforcement of the collection of the capital gains tax. Until January 1, 2009, only sales by non-residents of $800,000.00 and above are subject to the withholding requirement. After January 1st, sales by non-residents of $300,000.00 and above will be subject to the requirement.
4. All members are urged to visit the Department of Revenue website www.revenue.alabama.gov for more information concerning this new law and compliance therewith. There are a number of exemptions to the law including sales involving a primary residence.
5. REMEMBER UNTIL JANUARY 1, 2009, THIS NEW LAW ONLY APPLIES TO SALES OR TRANSFERS BY NON-RESIDENTS WITH A PURCHASE PRICE OF $800,000.00 AND ABOVE. AFTER JANUARY 1, 2009, SALES BY NON-RESIDENTS OF $300,000.00 AND ABOVE WILL BE SUBJECT TO THE LAW.
6. Under the new law, the Buyer is liable for the capital gains tax owed by the seller if the tax is not withheld and timely remitted to the Department of Revenue after the sale or transfer of the property.
This Notice is provided for informational purposes only as a benefit to members of the Alabama Association of REALTORS®. This information is not given as legal advice. Members are urged to contact closing attorneys, closing agents and/or Title companies.
For Additional Details and Specifics Concerning This New Tax Witholding Law, Contact The Alabama Department of Revenue at 334-242-1101 and/or Visit www.alabama.revenue.gov.