Rhode Island Reduces Withholding Percentage on Certain Real Estate Sales

The state of Rhode Island has enacted a new law that reduces the amount of the state’s withholding on real estate sales by nonresident corporations from 9% to 7%.  See Section 44-30-71.3 of the General Laws.  The new law is effective immediately on passage, July 15, 2019.

Like some 15 other states, Rhode Island has a law modeled after the federal Foreign Investment in Real Property Tax Act (FIRPTA), which requires foreign sellers of United States real property to withhold tax on the proceeds unless certain requirements are met.  The Rhode Island law requires withholding of 6% on sales by nonresident individuals, and until its recent amendment, 9% on sales by nonresident corporations.  The new law changes 9% to 7%.

With respect to relocation home sales, regulation NRW 95-02, Section IX provides special rules for relocation company sales in which a blank deed is used. Withholding is not required on the sale from employee to relocation company if the employee is a Rhode Island resident at the time the employee signs the deed in blank. The relocation company then files a notice of sale with the Division of Taxation within five working days of the transfer of title to the buyer. Although the regulation does not say so explicitly, it is clear from the approach that the sale by the relocation company is not considered a taxable event for withholding purposes. Accordingly, it should be irrelevant whether the relocation management company is a Rhode Island resident. However, if two deeds are used, then withholding would be required on the second sale if the employer or relocation management company is not a resident of Rhode Island, unless a waiver based on no gain is obtained prior to the closing. A corporation is a resident if it is registered to do business in Rhode Island.

As a practical matter, few relocation sales in Rhode Island become subject to withholding.  However, companies must organize their home sales to take advantage of these rules, and in the rare instance in which a relocation management company becomes subject to withholding, the amount required has been reduced.

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How This Impacts Mobility

Worldwide ERC® members will need to make sure that their relocation home sales in Rhode Island are organized to avoid withholding.