June 2012 Letter to the Editor
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Question: If a nonresident of California owns California income property, does his broker need to withhold 7% of the income generated by the property for tax purposes?
Answer:
California Revenue and Taxation Code §18662 states that nonresidents of California must pay taxes on California income. In the case of a landlord, these taxes are to be withheld by either the landlord or his agent from the rent paid on the California property.
Further, the California Franchise Tax Board’s guidelines on the matter state:
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About The Author
ft Editorial Staff
is the writing staff comprised of legal editor Fred Crane, In-House Broker Consultant Fernando Nunez and writer-editors Connor P. Wallmark, Giang Hoang-Burdette, Jeffery Marino, Carrie B. Reyes, Sarah Cantino, Matthew Taylor and Matthew Shade.
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Too many unanswered questions exist regarding this law. I posted these issues in a prior rent skimming article and I’ll post them again here.
It seems the objective of the law is to force the landlord to divest himself of the rent. What if there is a 1st and 2nd TD and the total of both payments exceeds the rental income? Is it the landlord’s discretion who he pays? What if he gives it all to the 2nd? What if he pays the 2nd far greater installments than required by the note just to get rid of the rent? What if he offered it to the senior lender first? Can the 1st claw the money away from the 2nd?
The law requires payment by the landlord but fails to require the lender to accept it. Does this really mean that the landlord’s only duty is to tender payment? Once refused, must the landlord continue to tender every month for a year? Can the lender sue even after refusing to accept it?
And if a lender with a due-on-sale provision knows that title passed and subsequently accepts the payment from a subject-to buyer, does a due-on-sale waiver result? If so, this is a good reason why a lender might refuse the rent when tendered but sue for it after a Trustee’s Sale.
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