Under South Carolina's permanent 1989 guidance, what did a payor have to withhold from proceeds paid to a nonresident seller of real estate and associated tangible personal property?
Apply this to your situation
This page answers the general question as of 1989. Ezel answers yours, under current South Carolina tax law, with citations.
Plain-English summary
South Carolina Revenue Ruling 89-19 required a payor to withhold part of the net proceeds paid to a nonresident seller in a covered property sale. Under this 1989 guidance, the withholding rate was 7% for an individual or other noncorporate seller and 5% for a corporation or an association or trust taxed as a corporation.
The rule covered the sale of any interest in real estate, including timeshares, standing timber, and minerals in place. Tangible personal property was covered only when sold as part of a transaction involving a real-estate interest.
The buyer generally had ultimate liability for withholding and payment. The ruling also described affidavit-based protections, transactions that were not treated as sales, seller-financed payment rules, escrow-agent responsibility, refund procedures, and lien priority.
RR 89-19 superseded emergency RR 89-15 and conflicting oral directives. It allowed RR 89-15 to be relied on until 30 days after RR 89-19's August 8, 1989 signature date.
Who counted as a nonresident
Subject to the ruling's special exception, it 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 owners, residency was determined separately, and withholding applied only to payments made to nonresident co-owners.
The ruling also treated a seller as a resident for this purpose when all four stated conditions were met: the seller had filed or extended the prior two South Carolina income-tax returns, continued substantially the same South Carolina business after the sale, promised to report the sale timely, and—if a corporation or limited partnership—was registered to do business in South Carolina. A qualifying affidavit protected the payor from liability.
What property and transfers were covered
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 exchanges under IRC sections 351 and 721;
- tax-free corporate reorganizations;
- transfers by the United States, South Carolina, their agencies or political subdivisions; and
- transfers by organizations exempt under IRC section 501(a) and insurance companies exempt from South Carolina income taxes.
The ruling also provided affidavit procedures for historical IRC sections 1033, 1034, and 121 transactions.
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. Earnest money and other payor payments made before July 1, 1989 were excluded.
The ruling allowed reductions from sales price for qualifying mortgages and liens on the property and for listed selling expenses, including commissions, attorney fees, deed stamps, the seller's share of real-property taxes, and termite and heating-and-air letters. It specifically said the seller's tax basis could not be deducted.
For certain closings using a HUD-1 settlement statement, it treated line 603 cash paid to the seller as net proceeds. It limited deductions for recent mortgages, liens, and credit-line advances unless the payor obtained the affidavit described in the ruling showing the debt was not created in contemplation of the sale.
Seller-financed sales
When the seller financed all or part of the sale, the payor generally withheld from each principal payment, not from interest.
The ruling allowed the parties instead to pay withholding on all net proceeds at closing or elect annual withholding, with each annual amount due when the first payment was made for that calendar year.
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 payor was relieved from future withholding only after receiving that exemption letter.
Liability, payment, and records
The payor—generally the buyer—had ultimate liability for withholding and payment. An escrow agent holding money after closing was responsible and secondarily liable for withholding from payments it made to the seller.
The ruling's historical deadlines depended on the amount:
- $500 or more was due by the fifteenth day of the month after the sale month; and
- less than $500 was due by the last day of the month after the calendar quarter of sale.
It directed use of Form I-290, required separate forms for multiple sellers, and described who received each copy. It also allowed the seller to apply withholding against estimated income-tax payments and described a refund procedure when the amount remitted was incorrect.
A payor could rely on an affidavit only if it contained the identification, closing-date, and property-description information specified in the ruling and the payor did not know it was false. The payor retained the affidavit for audit rather than sending it to the Commission.
Lien priority
The ruling said a property lien filed before the Commission's lien retained priority over the withholding obligation. The Commission would not file its lien until it established that withholding was due, assessed the tax, and issued a warrant after the payor failed to pay.
What this means for you
Buyers and closing professionals
Under this historical guidance, the buyer generally carried the ultimate withholding obligation. The seller's residency, the legal character of the transfer, the property included, the net-proceeds computation, and any qualifying affidavit could change the result.
Nonresident sellers
The withheld amount was credited against income tax due when the seller reported the sale, and excess withholding was refundable. For seller financing, future withholding ended only after the Commission issued the exemption letter described in the ruling.
Escrow agents
An escrow agent holding money after closing was responsible and secondarily liable for withholding from payments it made to the seller.
Accountants and tax professionals
RR 89-19 describes 1989 law and procedures. Its rates, federal-law references, form, thresholds, deadlines, mailing addresses, and affidavit language should not be used for a current transaction without checking current law and Department instructions.
Common questions
Q: What percentage did the payor withhold?
A: Under the ruling, 7% of net proceeds for a noncorporate seller and 5% for a corporation or an association or trust taxed as a corporation.
Q: Did withholding apply to a stand-alone sale of equipment or other tangible property?
A: No. Tangible personal property was covered only when sold as part of a transaction involving a real-estate interest.
Q: Could the payor rely on a seller's residency affidavit?
A: Yes, if the affidavit contained the information and certifications required by the ruling and the payor did not know it was false.
Q: Was the seller's tax basis deducted when computing net proceeds?
A: No. The ruling expressly said the seller's tax basis could not be deducted.
Q: Was interest included in withholding on seller-financed payments?
A: No. Withholding applied to principal payments, not interest.
Q: Who was responsible when an escrow agent held the seller's money?
A: The payor had ultimate liability, while the escrow agent was responsible and secondarily liable for withholding from payments it made to the seller.
Q: Did RR 89-19 replace RR 89-15 immediately?
A: RR 89-19 said it superseded RR 89-15, but it also allowed reliance on RR 89-15 until 30 days after RR 89-19 was signed.
Q: Can the 1989 percentages and deadlines be used now?
A: Not without checking current law and Department guidance. The ruling states historical rates, thresholds, forms, deadlines, and procedures.
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 1033, 1034, and 121 — historical nonrecognition and principal-residence provisions discussed
- Internal Revenue Code section 501(a) — tax-exempt organizations
- 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/RR89-19.pdf
Original ruling text
SC REVENUE RULING #89-19
SUBJECT:
Withholding on Sales of Real and Tangible Personal Property by
Nonresidents
EFFECTIVE DATE:
July 1, 1989
SUPERSEDES:
S.C. Revenue Ruling #89-15 and any oral directives in conflict
herewith. SC Revenue Ruling #89-15 may be relied upon until thirty
days after the date this ruling is signed.
REFERENCE:
S.C. Code Ann. 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.
When the nonresident seller files a South Carolina income tax return for the year of the sale and
reports the gain or loss on the sale, the amount withheld will be applied against any income tax
due and any excess will be refunded.
The following questions and answers are provided to give guidance in complying with this
statute.
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Definitions
- Who is a Nonresident?
Subject to the exception in item g below, the following persons are nonresidents:
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.
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.
g) Exception - Any seller who meets all of the following conditions will be considered
a resident for purposes of this section:
1)
The seller has filed South Carolina income tax returns or appropriate extensions
have been received for the seller's two income tax years immediately preceding
the year of sale; and
2)
The seller is in business in South Carolina and will continue substantially the
same business in South Carolina after the sale; and
3)
The seller will report the sale on a South Carolina income tax return for the
current year and file it by its due date; and
4)
If the seller is a corporation or limited partnership, it is registered to do business
in South Carolina.
If the seller furnishes an affidavit to the payor which meets the requirements
contained in the answer to question 16 and certifies that the above four
requirements are met, the payor will not be liable for withholding.
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2. Can the payor rely on the seller's determination of residency?
If the seller furnishes the payor an affidavit which states that the seller is a resident of South
Carolina and meets the requirements in the answer to question 16, the payor will not be liable
for withholding.
- The sale of what type of property will require withholding?
a) The sale of any interest in real estate. This includes the sale of time shares, standing
timber and minerals in place.
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. - What is a sale?
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.
It does not include tax exempt or tax deferred transactions. Examples of transactions which
are not "sales" include, but are not limited to:
a.
Gifts and inheritances which are tax free under Section 102 of the Internal Revenue
Code.
b.
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.
c.
Tax free exchanges of property for stock in a corporation which qualify under
Section 351 of the Internal Revenue Code.
d.
Tax free exchanges of property for a partnership interest under Section 721 of the
Internal Revenue Code.
e.
Transfers of property as part of a tax free corporate reorganization.
f.
Transfers of property from the U.S. Government, agencies of the U.S. Government,
South Carolina and its agencies and political subdivisions. These transfers include
any transfer made by a deed signed by a ederal or South Carolina judicial or other
government official acting in his or her official capacity.
g.
Transfers of property from organizations exempt from income taxes under Internal
Revenue Code Section 501(a) and insurance companies exempt from South
Carolina taxes on income.
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5. What about the sale of a principal residence where the seller intends to defer his 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 pursuant to
Section 121 of the Internal Revenue Code.
The payor will not be liable for withholding if he obtains an affidavit from the seller which
meets the requirements contained in the answer to question 16 and states 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 return for the
year of the sale; and
c)
The seller acknowledges his obligation to file an amended South Carolina income tax
return for the year of the sale f the seller fails to comply with Section 1034.
- What about a sale that qualifies as an involuntary conversion or condemnation and the seller
elects nonrecognition of the gain under Internal Revenue Code Section 1033?
The payor will not be liable for withholding if he obtains an affidavit from the seller which
meets the requirements contained in the answer to question 16 and states that:
a)
The sale will not be subject to tax because of Section 1033 of the Internal Revenue
Code; and
b)
The seller acknowledges his obligation to file a South Carolina income tax return for the
year of the sale; and
c)
The seller acknowledges his obligation to file an amended South Carolina income tax
return for the year of the sale if the seller fails to comply with Section 1033.
- If the sales price is paid or advanced to an employee by an employer or a relocation service,
will the payment to the employee and the ultimate sale of the property be treated as one sale
or two separate sales or the purpose of withholding?
When the employee treats the ultimate sale as a sale on his income tax return and neither the
employer nor the relocation service is required to treat it as a sale for income tax purposes,
then the sale is from the employee to the ultimate purchaser and only it will be subject to
withholding.
When the employer or relocation service is required to treat the advance and the ultimate sale
as a purchase and sale by it, then each transaction, the sale from the employee to the
employer or relocation service and the sale from the employer or relocation service to the
ultimate purchaser, will be subject to withholding.
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The payor may rely on an affidavit from the employer or relocation service which meets the
requirements contained in the answer to question 16 and states that the transaction is, or is
not, a taxable sale by the employer or relocation service and further states the residency of
the seller (whether the seller is the employee, employer or relocation service).
Computing Withholding
- What is the total payment subject to withholding?
The total payment subject to withholding is 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. Earnest money paid or other payments made by the payor prior to July 1, 1989, are not
subject to withholding. The net proceeds of the sale are computed by reducing the total sales
price by:
a. Mortgages and liens
Only mortgages and liens on the property being sold may be deducted from the sales
price. Liens, mortgages or advances on credit lines in contemplation of the sale cannot
be deducted. Unless the payor knows otherwise, the payor can presume that any liens,
mortgages or advances on credit lines made more than one year before the closing are not
in contemplation of the sale and may be deducted. If the lien, mortgage or credit line
advance is made less than one year prior to the closing, the payor cannot deduct the
mortgage, lien or credit line advance unless the payor obtains an affidavit from the seller,
which states that the loan or advance was not made in contemplation of the sale and
meets the requirements contained in the answer to question 16.
A loan or advance made in contemplation of the sale is a loan or advance which has as
one of its purposes reducing the amount withheld. It does not include loans or advances
where the enire proceeds are used to purchase or improve the property being sold and it
does not include loans made prior to July 1, 1989.
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 a HUD-1 Settlement Statement is prepared and the seller does not receive any property in
the transaction and no mortgages or advances on credit lines have been made in
contemplation of the sale, the net proceeds of the sale will be equal to the cash to be paid to
the seller as stated on line 603 of the HUD-1.
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The seller's tax basis in the property cannot be deducted.
- What about installment sales?
If the seller finances all or part of the transaction, the payor is required 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.
Rather than withholding on each payment, the payor and seller may agree that the payor may
pay the withholding on the entire net proceeds of the sale at the time of the closing or make
an election to pay the withholding on an annual basis with each annual withholding payment
due when the first payment is made to the seller for each calendar year.
If the seller files a tax return reporting a loss on the sale or the entire 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
payor. Upon receipt of the exemption letter, the payor is relieved from withholding on any
future payments. - What is the withholding amount?
The withholding amount is 7% of the net proceeds computed in item 8 (and 9, if the sale is an
installment sale) except when the nonresident seller is a corporation, then the withholding
amount is 5% of the net proceeds.
The withholding amount for an association or trust that is taxed as a corporation is 5%.
Liability - Who is liable for the withholding and payment?
The payor has the ultimate liability for withholding and paying the tax to the Commission.
Generally, the payor is the buyer. In certain instances a payor other than the buyer may be
held liable.
An escrow agent holding money after the closing is responsible and secondarily liable for
withholding on all payments made by the escrow agent to the seller.
Payments and Refunds - 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 he month following the month in which the sale took place.
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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 payor or escrow agent
may pay the withholding amount to the Commission as soon after the closing as desired.
- How is the payment to be made?
The Commission has designed Form I-290 to use when paying the withholding amount. A
copy is attached to this ruling.
If there is more than one seller, e.g. tenants in common, a separate Form I-290 should be
used for each seller.
Four (five if the payor is not the buyer) copies of Form I-290 should be completed for each
sale. The payor should send one copy to the Tax Commission with payment of the withheld
amount. The seller should receive two copies, one to be sent in with his income tax return
reporting the sale and one for his records. The payor should receive one copy for his records,
and if the payor is not the buyer, the buyer should receive and retain one copy.
Send Form I-290 and payment of the amount withheld to:
South Carolina Tax Commission
Real Estate Withholding
P.O. Box 125
Columbia, South Carolina 29214 - Can the withholding be used by the seller against estimated income tax payments?
The seller may apply amounts withheld against any estimated income tax payments. - Can part or all of the withholding be refunded if the amount withheld and sent to the Tax
Commission was incorrect?
If the amount withheld and sent to the Tax Commission was incorrect because of an error in
computing the amount or the seller and payor were unaware of the exceptions to the
withholding at the time of the closing, then part or all of the withholding may be refunded to
the seller.
The payor may submit a request for refund with (1) a corrected withholding form and (2) the
reasons for the correction. The request should be mailed to:
PRO - Real Estate Withholding
P.O. Box 11189
Columbia, S.C. 29211-1189
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Affidavits
- When can the payor rely on an affidavit referred to in this Revenue Ruling?
A payor can rely on the facts contained in an affidavit referred to in this Revenue Ruling, if
a) It states under penalty of perjury:
1) The seller's name, address and social security number or taxpayer identification
number; and
2) If the affiant is not the seller, the affiant's name, address and social security number or
taxpayer identification number; and
3) The closing date of the sale; and
4) A description of the property. The description of real property must include the
county it is in and its tax map number(s).
b) The payor does not know the affidavit is false. - What should the payor do with an affidavit from the seller?
The payor should retain the affidavit with his records and produce it if requested during an
audit. The payor should not send the affidavit to the Tax Commission. - Where can I get an affidavit?
You can use a copy of the affidavit attached to this ruling or prepare your own.
Liens - 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, assesses the
tax, and issues a warrant after the payor fails to pay the assessed tax.
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
August 8
, 1989
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Seller's Affidavit South Carolina Withholding Tax
S.C. Code Section 12-9-310, 1976 Code of Laws, as amended, provides that a payor of the
proceeds of a sale of a South Carolina real property interest must withhold tax if the seller is a
nonresident.
The undersigned on oath, being first duly sworn, hereby certifies as follows:
- This affidavit is being given in connection with a sale of real estate pursuant to SC Revenue
Ruling #89-19. - I have attached to this affidavit a description of the real property and any tangible personal
property being sold as part of this sale. The description of the real property includes the
county it is in and its tax map number(s). - Unless block 14 is checked, the undersigned is the seller of the property described in the
attached description. - The closing date of this sale is
- The Seller's name is
- The Seller's address is
(number, street or rural route)
(city, state and zip code) - The Seller's social security number or taxpayer identification number is:
8.
The seller is a resident of South Carolina, as that term is defined in the South Carolina
income tax laws (S.C. Code Section 12-1-10 et seq. as amended) and in S.C. Tax
Commission Regulations and Rulings.
9.
Pursuant to SC Revenue Ruling #89-19 the seller is deemed to be a resident of South
Carolina because:
1) The seller has filed South Carolina income tax returns or appropriate extensions have
been received for the seller's two income tax years immediately preceding the year of
sale; and
2) The seller is in business in South Carolina and will continue substantially the same
business in South Carolina after the sale; and
3) The seller will report the sale on a South Carolina income tax return for the current
year and file it by its due date; and
4) If the seller is a corporation or limited partnership, it is registered to do business in
South Carolina.
10.
The sale of the property will not be subject to taxes because of Section 1033, 1034 or
121 of the Internal Revenue Code. The seller acknowledges his obligation to file a
South Carolina income tax return for the year of the sale. If the seller fails to comply
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with Section 1033 or 1034, the seller acknowledges an obligation to file an amended
South Carolina income tax return for the year of the sale.
11.
The seller is an organization exempt from income taxes under Internal Revenue Code
Section 501(a) or is an insurance company exempt from South Carolina taxes on
income.
12.
The seller is an association or trust taxed as a corporation and is subject to withholding
at 5%.
13.
Any lien, mortgage or credit line advance which was made within one year prior to the
closing was not made in contemplation of the sale as that phrase is defined in SC
Revenue Ruling #89-19.
14.
The undersigned is an employer or relocation company that has advanced the proceeds
to an employee. The receipt of the sales price is not a taxable sale reportable on the
undersigned's (employer's or relocation service's) income tax return. The employee [ is
is not (check one)] a resident of South Carolina at the time of the closing.
15.
The seller is an employer or relocation company that has paid an employee for the
property. The receipt of the sales price is a sale reportable on the undersigned's income
tax return.
The undersigned understands that this affidavit may be disclosed to the South Carolina Tax
Commission and that any false statement contained herein could be punished by fine,
imprisonment, or both.
Under penalties of perjury, I declare that I have examined this Affidavit and, to the best of my
knowledge and belief, it is true, correct and complete.
(Signature)
(Name - please print)
If the person making the affidavit is not the Seller, complete the following:
(Affiant's Social Security Number or Taxpayer Identification Number)
(Affiant's Number, Street or Rural Route)
(Affiant's City, State and Zip Code)
SUBSCRIBED AND SWORN to
before me this
day
, 1989.
of
Notary Public
My Commission Expires:
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