BILL NUMBER: SB 495 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 22, 2015
INTRODUCED BY Senator Stone
FEBRUARY 26, 2015
An act to amend Section 18662 of the Revenue and Taxation Code,
relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
SB 495, as amended, Stone. Income taxes: withholding: real
property sales.
Existing law requires the transferee of a California real property
interest, in specified circumstances, to withhold, for income tax
purposes, 31/3% of the sales price of the property when the property
is acquired from either an individual, or a partnership or
corporation without a permanent place of business, as specified.
Existing law also allows, by election of the transferor, alternative
withholding amounts that are not less than the amount of gain
required to be recognized under income tax laws multiplied by the
corporation tax rate, bank and financial corporate tax rate, the
highest personal income tax rate, or the current "S" corporation tax
rate plus the highest personal income tax rate, as applicable.
This bill would, in the case of any disposition of a California
real property interest in taxable years beginning on or after January
1, 2016, provide that withholding would not be required if a
transferor makes a written election, in a form prescribed by the
Franchise Tax Board, to remit any tax due with the filing of any
required tax return.
This bill would eliminate these withholding provisions for the
disposition of a California real property interest that occurs on or
after January 1, 2016, and would instead require the transferee of a
California real property interest to withhold 31/3% of the purchase
price of the property if the property was either acquired from a
person, who is not a resident or who after the transfer of the real
property will no longer be a resident of this state, or from a
corporation, if after the transfer that corporation has no permanent
place of business in this state.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 18662 of the Revenue and Taxation Code is
amended to read:
18662. (a) The Franchise Tax Board may, by regulation, require
any person, in whatever capacity acting, including lessees or
mortgagors of real or personal property, fiduciaries, employers, and
any officer or department of the state, or any political subdivision
or agency of the state, or any city organized under a freeholder's
charter, or any political body not a subdivision or agency of the
state, having the control, receipt, custody, disposal, or payment of
items of income specified in subdivision (b), to withhold an amount,
determined by the Franchise Tax Board to reasonably represent the
amount of tax due when the items of income are included with other
income of the taxpayer, and to transmit the amount withheld to the
Franchise Tax Board at the time as it may designate.
(b) The items of income referred to in subdivision (a) are
interest, dividends, rents, prizes and winnings, premiums, annuities,
emoluments, compensation for services, including bonuses,
partnership income or gains, and other fixed or determinable annual
or periodical gains, profits, and income.
(c) The Franchise Tax Board may authorize the tax under
subdivision (a) to be deducted and withheld from the interest upon
any securities the owners of which are not known to the withholding
agent.
(d) Any person that fails to withhold from any payments any
amounts required to be withheld by this section or fails to remit the
taxes withheld is liable for the amount specified in Section 18668.
(e) (1) This subdivision paragraph
applies to any disposition of a California real property interest
that occurs before January 1, 2016, by:
(A) Any person, other than either of the following:
(i) Except as otherwise provided in this subdivision,
paragraph, a corporation, including an entity
classified for tax purposes as a corporation under Part 11
(commencing with Section 23001).
(ii) Except as otherwise provided in this subdivision,
paragraph, a partnership, as determined in
accordance with Subchapter K of Chapter 1 of Subtitle A of the
Internal Revenue Code, including an entity classified as a
partnership for tax purposes under Part 10 (commencing with Section
17001).
(B) A corporation or partnership, if that corporation or
partnership immediately after the transfer of the title to the
California real property has no permanent place of business in
California. For purposes of this subdivision, a corporation or
partnership has no permanent place of business in California if all
of the following apply:
(i) It is not organized and existing under the laws of California.
(ii) It does not qualify with the office of the Secretary of State
to transact business in California.
(iii) It does not maintain and staff a permanent office in
California.
(2) (A) Except as provided in subparagraph (B), in the case of any
disposition of a California real property interest by a transferor
described in paragraph (1), the transferee, including for this
purpose any intermediary or accommodator in a deferred exchange, is
required to withhold an amount equal to 31/3 percent of the sales
price of the California real property conveyed.
(B) If the transferor makes an election under this subparagraph,
the transferee, including any intermediary or accommodator in a
deferred exchange, is required to withhold an amount equal to an
amount certified by the transferor in writing under penalty of
perjury. The amount certified shall not be less than the gain
required to be recognized under Part 10 (commencing with Section
17001) and Part 11 (commencing with Section 23001) on the disposition
of the California real property multiplied by the rate specified in
either Section 23151 or Section 23186, as
applicable, for transferors that are corporations, or the highest
rate specified in Section 17041 for transferors other than
corporations. For purposes of applying the previous sentence, the
following shall apply:
(i) The highest rate specified in Section 17041 is determined
without regard to any other tax rate specified under Part 10
(commencing with Section 17001) irrespective of whether the
applicable statute provides that tax shall be treated as if imposed
under Section 17041.
(ii) For corporations that are "S" corporations subject to the
modified tax rate specified in Section 23802, the rate shall be the
sum of the rate specified in subdivision (b) of Section 23802 and the
highest rate specified in Section 17041, as described in clause (i).
(C) (i) The written certification required by subparagraph (B)
shall be in a form, as prescribed by the Franchise Tax Board. The
form shall provide as follows:
"Title and escrow persons and exchange accommodators are not
authorized to provide legal or accounting advice for purposes of
determining withholding amounts. Transferors are strongly encouraged
to consult with a competent tax professional for this purpose."
(ii) The Franchise Tax Board shall make this form available
electronically on its Internet Web site in a format that
allows a transferor to complete and print the form. The Franchise Tax
Board shall also provide electronic means to enable the transferor
to estimate the amount of gain required to be recognized by the
transferor in the transaction. Any form or worksheet, electronic or
otherwise, developed for this purpose shall provide as follows:
"Title and escrow persons and exchange accommodators are not
authorized to provide legal or accounting advice for purposes of
determining withholding amounts. Transferors are strongly encouraged
to consult with a competent tax professional for this purpose."
(3) (A) On or after January 1, 2016, in the case of any
disposition of a California real property interest by a person (but
not a partnership as determined in accordance with Subchapter K of
Chapter 1 of Subtitle A of the Internal Revenue Code, or a
corporation), when the return required to be filed with the Secretary
of the Treasury under Section 6045(e) of the Internal Revenue Code
indicates, or the authorization for the disbursement of the
transaction's funds instructs, that the funds be disbursed either to
a transferor with a last known street address outside the boundaries
of this state at the time of the transfer of the title to the
California real property or to the financial intermediary of the
transferor, the transferee shall be required to withhold an amount
equal to 31/3 percent of the sales price of the California real
property conveyed.
(B) In the case of any disposition of a California real property
interest by a corporation, the transferee shall be required to
withhold an amount equal to 31/3 percent of the sales price of the
California real property conveyed, if the corporation immediately
after the transfer of the title to the California real property has
no permanent place of business in California. For purposes of this
subdivision, a corporation has no permanent place of business in
California if all of the following apply:
(i) It is not organized and existing under the laws of California.
(ii) It does not qualify with the office of the Secretary of State
to transact business in California.
(iii) It does not maintain and staff a permanent office in
California.
(3)
(4) Notwithstanding any other provision of this
subdivision, all of the following shall apply:
(A) No transferee is required to withhold any amount under this
subdivision unless the sales price of the California real property
conveyed exceeds one hundred thousand dollars ($100,000).
(B) No transferee, other than an intermediary or an accommodator
in a deferred exchange, is required to withhold any amount under this
subdivision unless written notification of the withholding
requirements of this subdivision has been provided by the real estate
escrow person.
(C) (i) No transferee, trustee under a deed of trust, or mortgagee
under a mortgage with a power of sale is required to withhold under
this subdivision when the transferee has acquired California real
property at a sale pursuant to a power of sale under a mortgage or
deed of trust or a sale pursuant to a decree of foreclosure or has
acquired the property by a deed in lieu of foreclosure.
(ii) No transferee is required to withhold under this subdivision
when the transferor is a bank acting as trustee other than a trustee
of a deed of trust.
(D) No transferee, including for this purpose any intermediary or
accommodator in a deferred exchange, is required to withhold any
amount under this subdivision if the transferee, in good faith and
based on all the information of which he or she has knowledge, relies
on a written certificate executed by the transferor, certifying,
under penalty of perjury, one of the following:
(i) (I) The California real property being conveyed is the seller'
s or decedent's principal residence, within the meaning of Section
121 of the Internal Revenue Code.
(II) The last use of the property being conveyed was use by the
transferor as the transferor's principal residence within the meaning
of Section 121 of the Internal Revenue Code.
(ii) (I) The California real property being conveyed is being
exchanged, or will be exchanged, for property of like kind, within
the meaning of Section 1031 of the Internal Revenue Code, but only to
the extent of the amount of the gain not required to be recognized
for California income or franchise tax purposes under Section 1031 of
the Internal Revenue Code.
(II) Subclause (I) may not apply if an exchange does not qualify
for nonrecognition treatment for California income or franchise tax
purposes under Section 1031 of the Internal Revenue Code, in whole or
in part, due to the failure of the transaction to comply with the
provisions of Section 1031(a)(3) of the Internal Revenue Code,
relating to the requirement that property be identified and that the
exchange be completed not more than 180 days after the transfer of
the exchanged property.
(III) In any case where clause (ii) applies, the transferee,
including for this purpose any intermediary or accommodator in a
deferred exchange, is required to notify the Franchise Tax Board in
writing within 10 days of the expiration of the statutory periods
specified in Section 1031(a)(3) of the Internal Revenue Code and
thereafter remit the applicable withholding amounts determined under
this subdivision in accordance with paragraph (4).
(iii) The California real property has been compulsorily or
involuntarily converted, within the meaning of Section 1033 of the
Internal Revenue Code, and the transferor intends to acquire property
similar or related in service or use so as to be eligible for
nonrecognition of gain for California income tax purposes under
Section 1033 of the Internal Revenue Code.
(iv) The transaction will result in either a net loss or a net
gain not required to be recognized for California income or franchise
tax purposes.
(v) The transferor is a corporation with a permanent place of
business in California.
(E) (i) In the case of any transaction otherwise subject to this
subdivision that qualifies as an "installment sale," within the
meaning of Section 453(b) of the Internal Revenue Code, for
California income tax purposes, the provisions of this subdivision
shall be separately applied to each principal payment to be made
under the terms of the installment sale agreement between the
parties.
(ii) For purposes of clause (i), subparagraph (A) of paragraph
(3) (4) does not apply to each
individual payment to be received under the terms of the installment
sale agreement.
(4)
(5) (A) Amounts withheld and payments made in
accordance with this subdivision shall be reported and remitted to
the Franchise Tax Board in the form and manner and at the time
specified by the Franchise Tax Board. Notwithstanding the foregoing,
funds withheld on individual transactions by real estate escrow
persons may, at the option of the real estate escrow person, be
remitted by the 20th day of the month following the close of escrow
for the individual transaction, or may be remitted on a monthly basis
in combination with other transactions closed during that month.
(B) The transferor shall submit a copy of the written certificate
and supporting documentation for the reduced withholding specified in
subparagraph (B) of paragraph (2) or subparagraph (D) of paragraph
(3), (4), executed by the transferor,
to the Franchise Tax Board upon request.
(5)
(6) For purposes of this subdivision, "California real
property interest" means an interest in real property located in
California and defined in Section 897(c)(1)(A)(i) of the Internal
Revenue Code.
(6)
(7) For purposes of this subdivision, "real estate
escrow person" means any of the following persons involved in the
real estate transaction:
(A) The person, including any attorney, escrow company, or title
company, responsible for closing the transaction.
(B) If no person described in subparagraph (A) is responsible for
closing the transaction, then any other person who receives and
disburses the consideration or value for the interest or property
conveyed.
(7)
(8) (A) Unless the real estate escrow person provides
"assistance," it shall be unlawful for any real estate escrow person
to charge any customer for complying with the requirements of this
subdivision.
(B) For purposes of this paragraph, "assistance" includes, but is
not limited to, helping the parties clarify with the Franchise Tax
Board the issue of whether withholding is required under this
subdivision or, upon request of the parties, withholding an amount
under this subdivision and remitting that amount to the Franchise Tax
Board.
(C) For purposes of this paragraph, "assistance" does not include
providing the written notification of the withholding requirements of
this subdivision.
(D) In a case where the real estate escrow person provides
"assistance" in complying with the withholding requirements of this
subdivision, it shall be unlawful for the real estate escrow person
to charge any customer a fee that exceeds forty-five dollars ($45).
(8)
(9) For purposes of this subdivision, "sales price"
means the sum of all of the following:
(A) The cash paid, or to be paid, but excluding for this purpose
any stated or unstated interest or original issue discount, as
determined under Sections 1271 through to
1275, inclusive, of the Internal Revenue Code.
(B) The fair market value of other property transferred, or to be
transferred.
(C) The outstanding amount of any liability assumed by the
transferee or to which the California real property interest is
subject immediately before and after the transfer.
(9)
(10) The Franchise Tax Board may prescribe, by forms,
instructions, published notices, or regulations, any requirements
necessary for the efficient administration of this subdivision
relating to the treatment of "de minimis" amounts otherwise required
under this section.
(10) (A) Notwithstanding any other law, in the case of any
disposition of a California real property interest in taxable years
beginning on or after January 1, 2016, if not otherwise exempt,
withholding is not required under this section if a transferor makes
an election under this paragraph to remit any tax due with the filing
of any tax return required by this part.
(B) The election shall be made in a written form, as prescribed by
the Franchise Tax Board. The Franchise Tax Board may prescribe, by
forms, instructions, published notices, or regulations, any
requirements necessary for the efficient administration of this
paragraph, including the timing of making the election.
(f) Withholding is not required under this section with respect to
wages, salaries, fees, or other compensation paid by a corporation
for services performed in California for that corporation to a
nonresident corporate director for director services, including
attendance at a board of directors' meeting.
(g) In the case of any payment described in subdivision (f), the
person making the payment shall do each of the following:
(1) File a return with the Franchise Tax Board at the time and in
the form and manner specified by the Franchise Tax Board.
(2) Provide the payee with a statement at the time and in the form
and manner specified by the Franchise Tax Board.
(h) (1) The amendments to this section made by Chapter 488 of the
Statutes of 2002 apply to dispositions of California real property
interests that occur on or after January 1, 2003.
(2) In the case of any payments received on or after January 1,
2003, pursuant to an installment sale agreement relating to a
disposition occurring before January 1, 2003, the amendments to this
section made by Chapter 488 of the Statutes of 2002 do not apply to
those payments.
(i) (1) The amendments made to this section by the act adding this
subdivision shall apply to dispositions of California real property
interests that occur on or after January 1, 2009.
(2) In the case of any payments received on or after January 1,
2009, pursuant to an installment sale agreement relating to a
disposition occurring before January 1, 2009, the amendments made to
this section by the act adding this subdivision do not apply to those
payments.