Articles

Maryland's New Non-Resident Real Estate Withholding Tax

By: Ed Lee

Sales or transfers of real property and associated tangible personal property by non- resident individuals and non-resident entities are now subject to income tax withholding pursuant to §10-912 of the Maryland Tax-General Article. In such transfers, the deed or other instrument of transfer will not be accepted for recordation in the land records or filing with the State Department of Assessments and Taxation unless 4.75% of the total payment to a non-resident individual or 7% of the total payment to a non-resident entity is made to the Clerk or SDAT. In every deed or other instrument of writing affecting a change of ownership, the total payment must be described in (i) the recitals or the acknowledgment of the deed or other instrument, or (ii) an affidavit under oath that is signed by the transferor or by an agent of the transferor. Although the certification as to the total payment is required as to all instruments, there are a number of exemptions to the withholding requirement: (1) a certification under the penalties of perjury that the transferor is a Maryland resident or that the property being transferred is the transferor's principal residence; (2) the property is transferred pursuant to a foreclosure or deed in lieu of foreclosure; (3) the property is transferred by the United States, the State, or a unit or political subdivision of the State; or (4) an exemption certificate is issued by the Comptroller. In order to obtain an exemption certificate, a request must be filed with the Comptroller at least twenty-one (21) days prior to closing. The statute provides the following additional information:

• "Non-resident entity" means an entity that: (i) is not formed under the laws of Maryland, or (ii) is not qualified or registered to do business in Maryland.
• "Total payment" means the net proceeds of a sale actually paid to a transferor,including the fair market value of any property transferred to the transferor.
• "Net proceeds" means the total sales price paid to the transferor less (i) debts of the transferor secured by a mortgage or other lien on the property (other than debts incurred in contemplations of sale) with an effective date of more than ninety (90) days before the date of the sale and (ii) other expenses of the transferor arising out the sale or exchange of the property and disclosed on the settlement statement.
• “Debts incurred in contemplation of sale” means debt secured by a mortgage on the property with an effective date of not more than ninety (90) days before the date of the sale. This type of mortgage debt is not deductible from the total sales proceeds for purposes of computing the total payment.
• The person responsible for closing is responsible for ensuring that sufficient funds are withheld at closing and for paying the amount of withholding tax due to the Clerk or SDAT.
• Whiteford, Taylor & Preston recommends that a clause be inserted into all real estate contracts requiring the Seller comply with Section 10-912 of the Maryland Tax-General Article and furnish such information and documents as may be requested by the settlement company. Additional information may be obtained on the Comptroller's website at www.marylandtaxes.com. This article is published for the clients and other friends of Whiteford, Taylor & Preston L.L.P. This article has been prepared for general informational purposes only and are not intended as legal advice.