Bill Summaries: S614 (2017-2018 Session)

  • Summary date: Apr 4 2017 - View summary

    Enacts GS 105-163.3A, requiring a person who purchases residential real property, or residential real property and associated tangible personal property, from a nonresident seller to withhold the lesser of (1) the net proceeds payable to the nonresident seller or (2) an amount equal to the product of the individual income tax percentage provided in GS 105-153.7 multiplied by the gain recognized on sale.

    Defines nonresident seller as (1) an individual whose permanent home is outside of North Carolina on the date of the sale, (2) a partnership whose principal place of business is located outside of North Carolina, (3) a trust administered outside of North Carolina, or (4) an estate of a decedent whose permanent home was outside of North Carolina at the time of death. Defines sale to mean a transfer where gain or loss is computed in accordance with Section 1001 of the Internal Revenue Code (Code) together with any modifications provided in Part 2 of Article 4 of Subchapter I of GS Chapter 105 (concerning individual income tax). Establishes that sale does not include (1) tax exempt or tax deferred transactions other than installment sales, (2) transactions to the extent the gain on the sale of a principal residence is excluded in accordance with Section 121 of the Code, or (3) other transactions excluded by the Department of Revenue on the grounds that the benefits to the State are insufficient to justify the burdens imposed by the statute. 

    In the case where the seller finances all or part of the transaction, in lieu of remitting the tax due on each installment payment, the seller can give the buyer an affidavit stating that for State income tax purposes the seller will elect out of installment sales treatment, as defined by Section 453 of the Code, and remit the entire amount of tax to be due over the period of the installment agreement. 

    Excepts from the provisions of the statute a nonresident seller who (1) has filed at least one State income tax return and is not delinquent with respect to filing State income tax returns; (2) has been in business in North Carolina during the last two taxable years, including the year of sale, and will continue in substantially the same business in North Carolina after the sale; and (3) is registered to do business in North Carolina. 

    Concerning remittance, establishes that a person who holds an amount pursuant to the statute is liable for the collection and payment of the amount, and must remit the amount withheld to the Department of Revenue on or before the fifteenth day of the month following the month in which the sale takes place, unless the time for remittance is extended by the Department for a seller-financed sale. Clarifies that the statute does not make a lending institution, real estate agent, or closing attorney liable for collection and payment of amounts withheld; however, the statute does require those entities and agents to remit the amount the entity or agent has withheld within the time frame provided. 

    Details information the closing attorney is required to report to the Department of Revenue for every sale for which withholding is required by the statute. 

    Upon submitting additional documentation of an error to the Department of Revenue, allows for the nonresident seller to request a refund for any amount over withheld or pay any amount due if a withholding payment contains a computational error or results in excess withholding based on the amount of gain required to be recognized from the sale.

    Effective July 1, 2017, and applies to sales of residential real property, or residential real property and associated tangible personal property, occurring on or after that date.