California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 2.6 - Administration of Franchise and Income Tax › Subchapter 2 - Returns › Article 5 - Withholding › Section 18662-3 - Real Estate Withholding

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 General. Withholding of tax at source is required on any disposition from the
					 sale or exchange of California real estate by a seller/transferor. The rate of
					 withholding is 3 1/3 percent of the sales price, but the seller/transferor may
					 elect an alternative withholding calculation based on the gain required to be
					 recognized from the sale as set forth in FTB Form 593, Real Estate Withholding
					 Statement, or any successor form designated by the Franchise Tax Board on its
					 website at
www.ftb.ca.gov
("FTB Form 593").
					 The required information specified in FTB Form 593 is set forth in subsection
					 (h), below. The requirement to withhold is the responsibility of the
					 buyer/transferee, but may be performed by the real estate escrow person on the
					 buyer's/transferee's behalf. No withholding is required under the provisions
					 set forth in Revenue and Taxation Code section
					 18662,
					 subdivision (e)(3), or if an exemption certificate, on FTB Form 593, is
					 completed, signed, and submitted to the real estate escrow person prior to the
					 close of escrow. For example, the seller/transferor may certify on FTB Form 593
					 that the property was the seller's/transferor's principal residence or that no
					 gain is recognized from the sale. The Franchise Tax Board may audit escrow
					 documents to verify compliance.
(b)
					 Statutory Basis and Rates. Revenue and Taxation Code section
					 18662,
					 subdivision (e), requires withholding of tax at source from any disposition,
					 sale or transfer of California real property at an amount equal to 3 1/3
					 percent of the sales price, unless an election is made to use an alternative
					 withholding calculation based on gain required to be recognized from the sale
					 on FTB Form 593. The alternative withholding calculation shall be based on the
					 maximum applicable tax rate under Revenue and Taxation Code sections
					 17041,
					 23151,
					 and
					 23186.
(c) Who Must Withhold -- Required
					 Notification and Responsibility.
(1)
					 Notification. Revenue and Taxation Code section
					 18668,
					 subdivision (e)(1), requires the real estate escrow person to provide the
					 buyer/transferee with written notice of the withholding requirements, unless
					 the buyer/transferee is an intermediary or accommodator in a deferred
					 exchange.
(2) Penalties for Failure
					 to Provide Notice. If the real estate escrow person fails to provide the
					 buyer/transferee with written notice, a penalty may be assessed of $500 or 10
					 percent of the amount required to be withheld, whichever is greater, unless it
					 is shown that the failure to notify the buyer/transferee is due to reasonable
					 cause.
(3) The Real Estate Escrow
					 Person May Assist the Buyer/Transferee With the Buyer's/Transferee's
					 Withholding Obligations. Once the buyer/transferee is notified, it is the
					 buyer's/transferee's responsibility to withhold. However, the real estate
					 escrow person may assist the buyer/transferee in complying with the withholding
					 requirements by performing or assisting in the withholding, remitting the
					 required withholding, and completing FTB Form 593 and FTB Form 593-V, Payment
					 Voucher for Real Estate Withholding, or any successor form designated by the
					 Franchise Tax Board on its website at
www.ftb.ca.gov
("FTB Form 593-V"). The required
					 information specified in FTB Form 593 and FTB Form 593-V is set forth in
					 subsection (h) and subsection (i), respectively, below. The real estate escrow
					 person may charge a fee for this assistance not to exceed the amount set forth
					 in Revenue and Taxation Code section
					 18662,
					 subdivision (e).