Maryland Withholding

From State Tax Site:

The new requirements for nonresident sale of real property take effect October 1, 2003 are now available online.

Excerpted from the above pdf document:

Section 10- 912 of the Tax- General Article, Annotated Code of Maryland, provides for income tax withholding on sales or transfers of real property and associated tangible personal property in Maryland by nonresident individuals and nonresident entities. This code section was added by Chapter 203, Acts of 2003 (House Bill 935) and is effective October 1, 2003.

In a sale or transfer of real property and associated tangible personal property in Maryland owned by a nonresident individual or a nonresident entity, the deed or other instrument of transfer may not be recorded with the clerk of the circuit court for a county (Clerk) or filed
with the Department of Assessments and Taxation (Department) unless payment is made to the
Clerk or Department in an amount equal to 4.75% of the total payment to a nonresident individual or 7% of the total payment to a nonresident entity. For purposes of this section, a nonresident entity means an entity that: (1) is not formed under the laws of Maryland, or (2) is
not qualified by or registered with the Department to do business in Maryland.

The “total payment” on which the Maryland income tax withholding payment to the Clerk or Department is computed is the total sales price paid to the transferor less: (1) debts of the transferor secured by a mortgage or other lien on the property being transferred that are being
paid upon the sale or exchange of the property; and (2) other expenses of the transferor arising out of the sale or exchange of the property and disclosed on a settlement statement prepared in connection with the sale or exchange. The total payment also includes the fair market value of any property transferred to the transferor.
 

The person responsible for closing is responsible for ensuring that sufficient funds are withheld at settlement and for paying the amount of withholding tax due to the Clerk or Department when the deed or other instrument of transfer is presented for recordation. The tax paid on behalf of the nonresident transferor must be reported on Form MW506NRS . The payment of tax is being made on behalf of the nonresident transferor and will be claimed by the transferor on the Maryland income tax return filed for the tax year in which the sale or transfer of the real property occurred.

If the amount paid to the Clerk or Department is in excess of the income tax due on the sale or transfer of the real property, a nonresident individual or corporation may file a Form MW506R, Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents. This application may be filed sixty (60) days after the date the tax is paid to the Clerk or Department, but no later than the last day of the taxable year in which the transaction occurred. A pass- through entity (i.e., S corporation, partnership, and limited liability company)
may not file a Form MW506R. Any amounts paid on behalf of a pass- through entity must be allocated to its owners at the end of the tax year and reported to its owners on a modified federal Schedule K-1 or Maryland statement. The owners will report their allocable share of income and tax paid to the Clerk or Department on their Maryland tax return for that tax year.

There are a number of exemptions to the withholding requirement as follows:
 

•  A certification under penalties of perjury that the transferor is a Maryland resident is provided by each transferor in the recitals or the acknowledgement of the deed or other instrument of transfer or in an
  affidavit signed by the transferor or an agent of the transferor that accompanies and is recorded with the deed or other instrument of transfer;
   

•  A certification under penalties of perjury that the property being transferred is the transferor’s principal residence, as determined under the Internal Revenue Code, is provided by each transferor in the recitals or
  acknowledgement of the deed or other instrument of transfer or in an affidavit signed by the transferor or by an agent of the transferor that accompanies and is recorded with the deed or other instrument of transfer;

•  The property is transferred pursuant to a foreclosure or a deed in lieu of foreclosure;

•  The property is transferred by the United States, the State or a unit or political subdivision of the State; or

•  A certificate (Form MW506E) is issued by the Comptroller stating that:
  a. No tax is due from the transferor in connection with the sale or exchange of the property;
  b. A reduced amount of tax is due in connection with the sale or exchange and stating the reduced amount that should be collected by the Clerk or Department before recordation or filing; or
  c. The transferor has satisfied the transferor’s tax liability or has provided adequate security to cover such liability.

To request the certificate issued by the Comptroller, a nonresident or nonresident entity may file an Application for a Certificate of Full or Partial Exemption (MW506AE) with the Comptroller no later than 21 days before the date of closing. This 21-day time period is required to permit the Comptroller to review the application and, if appropriate, issue a certificate before the date of closing. If an application is received within 21 days from the date of closing, the Comptroller cannot guarantee that a certificate will be issued before the date of closing.

Additional information may be obtained by calling 1-800-MDTAXES (1-800-638-2937) or 410-260-7980 in Central Maryland, or on the Comptroller’s website at
www.marylandtaxes.com.