Under South Carolina's emergency 1989 guidance, what did a buyer have to withhold from payments to a nonresident seller of real estate and associated tangible personal property?

Plain-English summary

South Carolina Revenue Ruling 89-15 required a buyer to withhold part of the net proceeds paid to a nonresident seller in a covered property sale. Under this emergency 1989 guidance, the rate was 7% for an individual or other noncorporate seller and 5% for a corporation.

The rule covered the sale of any interest in real estate. Tangible personal property was covered only when it was sold as part of a transaction involving a real-estate interest.

The buyer carried ultimate responsibility for withholding and payment. A seller's qualifying residency affidavit could protect the buyer from liability, and tax-free or tax-deferred transfers listed in the ruling were not treated as sales. The guidance was expressly temporary: it applied from July 1, 1989 until 30 days after a permanent ruling or regulation was issued.

Who counted as a nonresident

The ruling treated the following as nonresidents:

• an individual whose fixed or permanent home was outside South Carolina at closing;
• a corporation not incorporated in South Carolina, unless it did no business in its incorporation state and had its principal place of business in South Carolina;
• a partnership whose principal place of business was outside South Carolina;
• a trust administered outside South Carolina; and
• an estate of a decedent whose fixed or permanent home was outside South Carolina at death.

For joint tenants and tenants in common, residency was determined separately. Withholding applied only to payments made to the nonresident co-owner or co-owners.

When the buyer could rely on a residency affidavit

The buyer was relieved from withholding liability if the seller provided an affidavit, under penalty of perjury, stating the seller's Social Security or taxpayer-identification number and that the seller was a South Carolina resident.

What counted as a covered sale

The ruling defined a sale as a transfer for which South Carolina gain or loss would be computed under Internal Revenue Code section 1001—a taxable sale or exchange.

It said tax-free or tax-deferred transactions were not sales for this purpose. Its examples included:

• gifts and inheritances tax-free under IRC section 102;
• qualifying like-kind exchanges under IRC section 1031 when the replacement property was in South Carolina;
• qualifying property-for-stock exchanges under IRC section 351;
• qualifying property-for-partnership-interest exchanges under IRC section 721;
• tax-free corporate reorganizations; and
• transfers by the United States, South Carolina, their agencies or political subdivisions, and other organizations not subject to income tax.

The ruling also provided an affidavit procedure for the historical principal-residence rollover and one-time exclusion provisions in IRC sections 1034 and 121.

Property covered

Withholding applied to the sale of any real-estate interest.

Tangible personal property was included only when sold as part of a transaction involving a real-estate interest. A stand-alone sale of tangible personal property was therefore outside the ruling's stated coverage.

How net proceeds were calculated

The withholding base was the net proceeds actually paid to the nonresident seller, including the fair market value of property transferred to the seller.

When a HUD-1 settlement statement was prepared and the seller received no property, the ruling treated line 603 cash to seller as net proceeds. It described reductions from sales price for:

• mortgages and liens;
• real-estate commissions;
• attorney fees;
• deed stamps;
• the seller's pro rata share of real-property taxes; and
• termite and heating-and-air letters.

Seller-financed transactions

When the seller financed all or part of the sale, the buyer withheld on each payment to the seller. Withholding applied to principal, not interest.

After the seller filed a return reporting a loss or all gain from the sale, the seller could ask the Commission for a letter exempting future principal payments. The buyer's duty ended for future payments only after receiving that exemption letter.

Who was liable and when payment was due

The buyer had ultimate liability for withholding and paying the Commission. The ruling said another payor could be liable in some circumstances.

If an escrow agent held money after closing, the agent was responsible and secondarily liable for withholding payments made to the seller.

The historical payment deadlines depended on amount:

• withholding of $500 or more was due by the fifteenth day of the month after the sale month; and
• withholding under $500 was due by the last day of the month after the calendar quarter of sale.

The ruling allowed the buyer or escrow agent to remit sooner and provided interim payment instructions while the Commission designed a form.

Liens and the seller's tax credit

The ruling said an earlier-filed property lien retained priority over the withholding obligation. The Commission would not file its lien until it established the liability, assessed the tax, and issued a warrant after the buyer failed to pay.

The nonresident seller could apply the withheld amount against estimated tax payments.

What this means for you

Buyers and closing professionals

Under this historical emergency guidance, the buyer—not the nonresident seller—carried the ultimate withholding obligation. The seller's residency, the legal character of the transfer, the property included, and the net-proceeds calculation all affected the amount.

Nonresident sellers

The withheld amount could be used against estimated tax. For seller financing, the ruling allowed a future-payment exemption only after the seller reported the loss or full gain and the Commission issued an exemption letter.

Escrow agents

An escrow agent holding money after closing was secondarily liable for withholding payments made to the seller.

Accountants and tax professionals

RR 89-15 was temporary 1989 guidance. Its rates, federal-law references, forms, thresholds, deadlines, and procedures should not be used for a current transaction without checking current law and Department instructions.

Common questions

Q: What percentage did the buyer withhold?

A: Under this ruling, 7% of net proceeds for a noncorporate seller and 5% for a corporate seller.

Q: Did withholding apply to a stand-alone sale of equipment or other tangible property?

A: No. The ruling covered tangible personal property only when it was sold as part of a transaction involving a real-estate interest.

Q: Could the buyer rely on the seller's statement of residency?

A: Yes, if the seller furnished the affidavit described in the ruling under penalty of perjury with the required identification number and South Carolina residency statement.

Q: Did withholding apply to tax-free or tax-deferred transfers?

A: No. The ruling excluded such transactions and listed several federal-law examples.

Q: Was interest included in withholding on seller-financed payments?

A: No. The ruling applied withholding to principal payments, not interest.

Q: Who was responsible if an escrow agent held the seller's money?

A: The buyer retained ultimate liability, while the escrow agent was responsible and secondarily liable for withholding payments it made to the seller.

Q: Can the 1989 percentages and deadlines be used now?

A: Not without checking current law. RR 89-15 was emergency guidance with an expressly limited effective period.

Citations and references

• S.C. Code section 12-9-310, as amended in 1989 — historical nonresident property-sale withholding provision
• Internal Revenue Code section 1001 — taxable sales or exchanges
• Internal Revenue Code sections 102, 1031, 351, and 721 — excluded tax-free or tax-deferred transfers listed in the ruling
• Internal Revenue Code sections 1034 and 121 — historical principal-residence provisions discussed
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-15.pdf

Original ruling text

SC REVENUE RULING #89-15

SUBJECT:

Withholding on Sales of Real and Tangible Personal Property to
Nonresident

EFFECTIVE DATE:

July 1, 1989 until 30 days after a permanent ruling or regulation is
issued.

REFERENCE:

S.C. Code Section 12-9-310 (As Amended 1989)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
S.C. Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the commission's official interpretation of how
tax law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent document until
superseded by a Regulation or is rescinded by a subsequent Revenue
Ruling.

PURPOSE:

This ruling is being issued in question and answer format on an
emergency basis to provide guidance on the application of 12-9-310 as
amended in the 1989 Appropriations Bill.

Section 12-9-310 has been amended, effective July 1, 1989, to require withholding on the
proceeds of sales of real and tangible personal property paid to nonresidents. It requires anyone
making payment (the "payor") to a nonresident of the proceeds of the sale of real property and
tangible personal property to deduct and withhold on the payments an amount equal to seven
percent of the total payment to individuals and five percent of the total payment to corporations.
The following questions and answers are provided to give guidance in complying with this
statute.
1.

Who is a Nonresident?
a)

Individual - Any individual having his or her fixed or permanent home outside of
South Carolina at the time of the closing.

b)

Corporation - Any corporation which is not incorporated in S.C., unless 1) it does no
business in its state of incorporation and 2) its principal place of business is South
Carolina.

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2.

c)

Partnership - Any partnership whose principal place of business is located outside of
South Carolina.

d)

Trust - Any trust that is being administered outside of South Carolina.

e)

Estate - Any estate of a decedent who at death had his or her fixed or permanent
home outside of South Carolina.

f)

Co-ownership - If two or more persons sell property which they own as joint tenants
with right of survivorship or as tenants in common, their respective residencies will
be determined separately. Withholding is only required on the payments made to the
nonresident co-owner or co-owners.

Can the buyer rely on the seller's determination of residency?
If the seller furnishes the buyer an affidavit stating, under penalty of perjury, the seller's
social security or taxpayer identification number and that the seller is a resident of South
Carolina, the buyer will not be liable for withholding.

3.

What is a sale?
a) A sale is any transfer where gain or loss for South Carolina income tax purposes would
be computed in accordance with Section 1001 of the Internal Revenue Code; i.e. any
taxable sale or exchange.
b) It does not include tax exempt or tax deferred transactions. Examples of transactions
which are not "Sales" include, but are not limited to:

1. Gifts and inheritances which are tax free under Section 102 of the Internal Revenue
   Code.
2. Those like - kind exchanges which are tax deferred under Section 1031 of the
   Internal Revenue Code provided the property received in the exchange is located in
   South Carolina.
3. Tax free exchanges of property for stock in a corporation which qualifies under
   Section 351 of the Internal Revenue Code.
4. Tax free exchanges of property for a partnership interest under Section 721 of the
   Internal Revenue Code.
5. Transfers of property as part of a tax free corporate reorganization.
6. Transfers of property from the U.S. Government, agencies of the U.S. Government,
   South Carolina and its agencies and political subdivisions, and other organizations
   not subject to tax on their income.

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4.

What about the sale of a principal residence where the seller intends to defer his or her
taxes by rolling over the proceeds into a new principal residence pursuant to Section 1034
of the Internal Revenue Code or intends to use his one-time exclusion of up to $125,000 of
Section 121 of the Internal Revenue Code.

1. If the buyer obtains an affidavit under penalty of perjury from the seller stating that:
   a) The sale will not be subject to taxes because of Section 1034 or 121 of the Internal
   Revenue Code; and
   b) The seller acknowledges his obligation to file a South Carolina income tax for the
   year of the sale and if the seller fails to comply with Section 1034 an amended
   return, the buyer will not be liable for withholding.

5.

The sale of what type of property will require withholding?
a) The sale of any interest in real estate.
b) The sale of tangible personal property will also require withholding, but only if it is
sold as part of a transaction involving the sale of an interest in real estate.

6.

What is the total payment subject to withholding?
The net proceeds of the sale actually paid to the nonresident seller including the fair market
value of any property to be transferred to the seller. If a HUD-1 Settlement Statement is
prepared and the seller does not receive any property in the transaction, the net proceeds
will be equal to the cash to be paid to the seller as stated on line 603 of the HUD-1. This
would be computed by reducing the sales price by:
a. Mortgages and liens
b. Selling expenses, such as:
1) real estate commission
2) attorney fees
3) deed stamps
4) pro rata share of real property taxes
5) termite, heating & air letters
If the seller finances all or part of the transaction, the buyer would be reqired to withhold
on each payment he makes to the seller. Withholding only applies to principal, nothing
should be withheld on interest paid to the seller. If the seller files a tax return reporting a
loss on the sale or all of the gain on the sale, the seller may apply to the Commission for a
letter exempting future principal payments from withholding. The Commission will
forward a copy of the exemption to the seller and the buyer. Upon receipt of the exemption
letter, the buyer is relieved from withholding on any future payments.

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7.

What is the withholding amount?
The withholding amount is 7% of the net proceeds computed in item 6, except when the
nonresident seller is a corporation on the withholding amount is 5% of the net proceeds.

8.

Who is liable for the withholding and payment?
The buyer has the ultimate liability for withholding and paying the tax to the Commission.
In certain instances a payor other than the buyer may be held liable.
If an escrow agent holds money after the closing he is responsible and secondarily liable
for withholding all payments made to the seller.

9.

When is the payment due?
If the withholding amount is $500 or more, the tax must be paid on or before the fifteenth
day of the month following the month in which the sale took place.
If the withholding amount is less than $500, the tax must be paid on or before the last day
of the month following the calendar quarter in which the sale took place.
Although payment is not required before the time provided above, the buyer or escrow
agent may pay the withholding amount to the Commission as soon after the closing as
desired.

10.

How is the payment to be made?
The Commission is designing a form to use when paying the withholding amount. In the
interim, the amount withheld may be paid with a letter which includes all of the
information in the attached interim form.
Send Information and Payments To:
PRO - Real Estate Withholding
P.O. Box 11189
Columbia, South Carolina 29211-1189

11.

Does the failure to withhold create a lien which takes priority over mortgages on the
property?
Any lien on the property will have priority over the obligation to withhold as long as it is
filed before the Tax Commission files a lien on the property. The Tax Commission will not
file a lien on the property until it establishes that the withholding tax was due, asseses the
tax, and issues a warrant after the buyer fails to pay the assessed tax.

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12.

Can the withholding be used by the seller against estimated tax payments?
The seller may apply amounts withheld against any estimated payments.
SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
1989
July 7

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Interim Information Required for Nonresident Real Property Sales
Social Securityor Federal
Name

Address

Identification #

1. Seller

2. Buyer

3. Payor

4. Date of Sale

5. Property information:
   a. Street Address
   b. County
   c. Tax Map Number

6. Computation of amount subject to withholding:
   a. Gross Sales Price
   b. Less; Mortgages Paid or Assumed
   c. Less; Selling Expenses
   d. Net Proceeds to Seller

7. Amount withheld:
   (7% or 5% multiplied by the Net Proceeds to Seller (item 6.d.))

8. Send Information and Payments To:
   PRO - Real Estate Withholding
   P.O. Box 11189
   Columbia, S.C. 29211-1189

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