If your Seller is not a resident of the State of Maryland, or if your seller is not an entity (corporation, limited liability company) formed in the State of Maryland or registered with the Maryland State Department of Assessments and Taxation to do business in Maryland, then the Seller will have to pay a withholding tax on the sale of the property. The amount due can vary from year to year, but the rate is currently 8% for an individual and 8.25% for an entity.
The tax is calculated on a figure known as the Total Payment. This is based not on the sales price, or the net proceeds, but rather on a somewhat complex formula starting with the sales price and subtracting out most closing costs such as commissions, transfer taxes, loan payoffs (it doesn’t count if you take out a mortgage inside 90 days before settlement!) and certain other closing fees. The withholding tax will be collected by Village Settlements and must be paid to the State of Maryland at the time of recording the Deed. Our team will also prepare the appropriate forms for the Seller to use when preparing their taxes.
It is possible to obtain a full or partial exemption from payment of the withholding tax at settlement by contacting the Comptroller of the State of Maryland at 1-800-MDTAXES. This process can take 3 weeks or more to obtain an Exemption Certificate (it will be mailed directly to Village Settlements.) We must have the Exemption Certificate in hand at or before settlement in order to waive the collection of some or all of the tax. An excellent booklet answering many questions related to this tax can be found here: https://www.marylandtaxes.gov/forms/current_forms/withholding_requirement.pdf
If you are unsure about whether your seller is subject to the non-resident withholding tax, please contact the attorneys at Village Settlements, Inc., one of the area’s best known title companies for three decades. Call us at 301-590-9300 or submit your question through the “Ask a Question” button on our website, www.villagesettlements.com