Section 280-RICR-20-10-1.9 - ComputationA. General: In accordance with the above, the buyer must deduct and withhold six percent (6%) of the net proceeds or gain to the seller if the seller is a nonresident individual, estate, partnership or trust and seven percent (7%) of the net proceeds or gain if the seller is a nonresident corporation. If there are multiple sellers, the buyer must compute and withhold for each seller separately.B. EXAMPLES: 1. Net Proceeds Method: a. Joseph Smith and Andrew David (both nonresidents) are selling a summer house in Rhode Island for $175,000, the proceeds to be shared equally, and they have not elected withholding based on gain. At the closing, cash at settlement to the nonresident sellers is $170,000 and the buyer withholds six percent (6%) or $10,200. The buyer then remits to the Division of Taxation using form RI-71.3 Remittance. Since there are multiple sellers, the buyer attaches a schedule listing both nonresidents' names, addresses and social security numbers so that the nonresidents may take proper credit for the amounts withheld when they file their Rhode Island personal income tax returns for the year of the sale.b. In the example above, if Joseph was a resident and gave a residency affidavit to the buyer at the closing, the buyer would only withhold and remit $5,100 to the Division of Taxation calculated as 1/2 x $170,000 or $85,000 @ 6% = $5,100.2. Gain Method: a. Martha Martinez (a nonresident) is selling property in Rhode Island and, 20 days before the closing, elects the gain method of withholding by computing the RI 71.3 Election form and sending it to the Division of Taxation. The form, when reviewed by the Division of Taxation lists the following: Sales Price | $ 200,000 |
Less Expenses of Sale | $ 21,000 |
Net Sales Price | $ 179,000 |
Less Cost/Basis | $ 71,000 |
GAIN | $ 108,000 |
b. Since all of the gain is being taxed in the year of the sale for Federal purposes, the withholding indicated was 6% x $108,000 = $6,480. The Division reviewed the Election, indicated the $6,480 as the amount to be withheld on the RI 71.3 Certificate and returned the certificate to Martha. At the closing, the certificate was presented, $6,480 was withheld and remitted by the buyer using the form RI 71.3 Remittance. The original copy of the approved certificate of withholding due (RI 71.3 certificate) should be attached to the form RI 71.3 Remittance when filed.c. If the property Martha was selling was her residence and if she otherwise qualified and intends to treat the sale under Section 121 of the Internal Revenue Code, she would still have to file the election form 20 days before the closing but would complete the election form and use the special types of transactions area on the back. The Division would review the election and, when approved, would send a certificate of withholding due (RI 71.3 certificate) indicating $0 to be withheld at the closing.3. Installment sales method: a. High Ridge Properties is a nonresident partnership selling property In Rhode Island. More than twenty (20) days prior to the closing the partnership elects to have the withholding based on gain by completing the RI 71.3 Election form. Additionally, the partnership will be treating the gain from the sale on the installment method for Federal purposes and, therefore, the partnership prepared and furnished a complete installment sale schedule with the Election form. The installment sale schedule showed total gain of $42,000 that 12% of each principal payment in Rhode Island received from the buyer was the gain to be recognized that High Ridge expects to receive $20,000 at the closing and that two (2) payments are to be received in the year of sale. In these two (2) payments, the principal portions total $1,000. The installment sale schedule's calculation then indicated the amount of gain to be recognized in the year of sale to be: (1) Gain Percentage = 12% Principal Payment Received during year of sale = $21,000.
Gain to be recognized during year of sale = $21,000 x 12%=$2,520.
The amount of non-recognized gain to be entered on Line 6 = $42,000 - $2,520 = $39,480
Thus, the amount to be withheld is 6% x $2,520 = $151.20.
(2) High Ridge also sends a calculation of how much withholding is to be made for each nonresident partner. After review, the Division of Taxation returns an approved certificate of withholding due (RI 71.3 Certificate) to the seller for use at the closing. The buyer uses the certificate to complete the remittance form (RI 71.3 Remittance) and sends the remittance, the approved original of the Certificate of Withholding Due, the check and, since High Ridge is a partnership, a list of High Ridge's nonresident partners' names, addresses, social security or Federal employer identification numbers and withholding so that the partners may take appropriate credit when they file their Rhode Island tax returns.b. If all the partners/members/shareholder of an entity do not agree to the election of the gain method, the net proceeds method would be used.c. If the amount to be withheld under the gain/installment sale method is more than the cash settlement at the closing, the remittance is limited to the cash settlement at the closing.280 R.I. Code R. 280-RICR-20-10-1.9