Buyers of Mississippi Real Property Relieved of Liability For Nonresident Seller Tax Withholding

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The responsibility for withholding, reporting, and paying tax on the gain realized on the sale of real property by a seller who is not a resident of the State of Mississippi is now back where it belongs:  with the seller.  Ever since Section 27-7-308 of the Mississippi Code Annotated was originally adopted in 1991, closing agents have had a difficult time explaining to buyers why the Mississippi legislature thought it was reasonable to hold a buyer personally responsible for payment of taxes owed by a nonresident seller.  Using the act of closing as a means of collection from nonresidents has proven to be an effective enforcement mechanism, but the statute went a bit too far in also shifting the burden for withholding the seller’s tax to the buyer.  Effective July 1, 2015, Senate Bill 2589 rectified this inequity through an amendment to the withholding statute retaining the requirement of withholding at closing but returning the responsibility for payment to the seller.  The amendment also expressly relieves real estate brokers and closing agents from liability to any party to the sale or to the State for noncompliance with the statute.

Nonresident sellers and their attorneys should continue to be aware of the seller’s obligation to withhold and pay 5% of the gross proceeds of the sale of real property and associated tangible personal property if the sale results in gross proceeds greater than $100,000.00.  The seller should complete withholding form 89-387 and deliver it along with the tax payment to the Mississippi Department of Revenue on or before the 15th of the month following the month of sale.  In the event seller determines that such withholding would result in excess payment for seller’s actual gain, seller may provide a sworn affidavit (form 89-386) reporting the actual gain and pay tax only on that amount. Buyers and their attorneys are now off the hook for collection.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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