The CT Connection

Beginning January 1, 2008, Sellers may be effected by Oregon Law (Ore. Rev. Statutes 314.258). This new law requires Escrow Agents to withhold tax from Non-Residents of real property located in Oregon. After withholding, the agent must remit the withholdings to the Oregon Department of Revenue (DOR).

Withholding does not apply in all circumstances. Withholding is NOT required if:

• The consideration (sales price) for the real property is $100,000 or less;
• The seller is acquiring the real property through foreclosure;
• The seller is an individual who is a resident of Oregon;
• The seller is a C corporation that has a permanent place of business in Oregon; or
• The seller has advice from a tax professional that the conveyance qualifies for no recognition of gain under IRC S1031 or S1033 (1031 Tax Deferred Exchange), or is otherwise not taxable to the transferor under Oregon law.

Determining residency status

Who is an Oregon Resident? A seller is a full-year resident of Oregon if all of the following are true;

The seller thinks of Oregon as their permanent home; Oregon is center of seller’s financial, social, and family life; and Oregon is the place the seller intends to return to when they are away.

Who is an NON Oregon Resident? A seller that maintains their permanent home outside of Oregon all year.

so it is important that the transferor (seller) identify whether an exemption to withholding applies. Perhaps the most frequently applicable exemption is the exemption for a seller who will remain an Oregon resident after closing. Some exemptions must be demonstrated solely to the closing agent. Others, including the exemption for Oregon residents, must be affirmed under penalty of perjury on a DOR form. Some exemptions may require advice of a tax professional. Some may require review of the Internal Revenue Code (IRC) and its regulations. Some may require reference to Oregon statutes.

When no exemption applies, the transferor (seller) must identify the withholding amount, using a DOR form. Completion of the form may require reference to the transferor’s records for such facts as tax basis and costs of sale.

Failure to make timely delivery to the closing agent of an affirmation of exemption or certificate of withholding amount may delay closing or cause withholding of a greater amount than otherwise would be necessary.

The withholding requirements apply separately to each transferor (seller) when a transaction has more than one transferor.

If you will not reside in Oregon after closing, please inform your escrow officer immediately. Each seller will be required to provide the escrow officer with the applicable form or forms from the following list at or before closing. You may request copies at any time.

Preliminary Statement regarding Exempt Status. A transferor (seller) who checks an exempt status on this form need not complete either of the following two DOR forms.

DOR Form 40-WE: Affirmation of Exemption from Withholding. A transferor (seller) who initials an exemption as applying on this form need not complete the next form. One exemption on this form is the exemption for an Oregon resident. A seller who is not exempt under either the Preliminary Statement form or DOR Form 40-WE must turn to the next form.

DOR Form 40-CW: Transferor’s Certificate of Oregon Withholding Amount. Using this form, a transferor (seller) identifies the amount of withholding. Failure to submit this form timely to the closing agent may result in an amount of withholding greater than otherwise would be required.

You may need to consult with your professional tax advisor in order to complete these forms. The closing agent will be unable to advise you in the event you have questions.

When withholding applies, the closing agent will prepare a DOR withholding transmittal form (Form TPV). The closing agent will send the form with its remittance of withholding, so that the transferor (seller) may claim a credit for the withholding on its Oregon tax return. The closing agent will send an informational form (DOR Form OR-18) to the transferor for the transferor’s records. The closing agent will retain a copy for its records.

When a transferor (seller) claims an exemption using DOR Form 40-WE (Affirmation of Exemption), the closing agent must send a copy of the form to DOR when certain circumstances apply. In all other circumstances, the closing agent must retain the form for possible inspection by DOR.