Out-of-State Sellers Beware!

The Oregon legislature passed a new law effective January 1, 2008, that requires escrow closers to provide forms to the seller regarding Oregon income tax on the sale of any real property within the State. Where the seller does not qualify for an exemption, escrow must withhold an amount to be disbursed to the Department of Revenue and retained as a credit until the seller files his/her Oregon income tax return for the year of the sale. There are three forms that could apply to a seller. Each seller must complete at least one of the forms. The first form is the Preliminary Statement regarding Exempt Status. This form is not a State originated form, but is designed to determine whether the seller falls under the statute. Sellers who do not fall under the statute and need complete no further forms include estates, trusts, S type corporations, general partnerships, limited partnerships, non-profit corporations, LLCs (unless they have elected to be taxed as a corporation or are treated as a disregarded entity under federal tax laws), or government entities.

If the seller marks "none of the above" on the Preliminary Statement, he/she needs to complete an additional form. Most sellers will need to complete the form WE-40, which includes additional exemptions that might allow the seller not to have taxes withheld. This is because the seller clearly falls under the statute but may qualify for an exemption on form WE-40. This is where the seller may claim an exemption. This is where the transaction can be claimed exempt because the sale price is $100,000 or less; the seller is an individual and resident of Oregon (defined in the instructions); the seller is a C corporation (the normal corporation we think of) that has a permanent place of business in Oregon; the sale qualifies as the sale of a residence with under $250,000 in taxable gain per owner; a transfer between spouses or incident to divorce; in lieu of foreclosure; where there is no taxable gain; under a list of organizational exemptions or other reasons explained by an attachment to the department.

If the seller does not qualify for an exemption on form WE-40, he must complete form 40-CW, which delineates what the withholding escrow is to remit to the Department of Revenue. Escrow cannot tell the seller how to complete any of the forms, and especially this form. It may require assistance from a tax professional. Escrow can provide the information needed from the escrow, but until the time of closing these may be estimated figures. Once the form 40-CW is completed, escrow will show the withholding on the HUD form, and send a form to the seller showing what has been remitted to the Department of Revenue. Failure of the seller to complete the necessary forms will result in automatic withholding of either 4% of the sales price or all of the net proceeds, whichever is less.

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Roberta Williams-Lock

Principal Broker
PO Box 80883
Portland OR, 97280