Non-Resident Withholding Requirements for Property Management Companies

The California Franchise Tax Board (FTB) now requires that property management companies who collect residential rent for out-of-state owners are required to withhold and remit seven (7%) percent of the rent when the rent exceeds $1500 for the calendar year.

CAA objected to the FTB Guidelines when they were posted to the FTB's Web site on February 9, 2009, and won a one year reprieve for CAA members and non-member rental property management companies. That one year is now over and quarterly reporting and remittance has begun.

The FTB guidelines allow the withholding agent (the management company) to use a reasonable method to calculate the total amount withheld. The management company for instance may deduct its management fee and other property expenses and then calculate the required percentage withheld. Of course there are required forms to do so (including filing for a waiver or exemption) and the links to those forms and other information can be found by clicking here.

Use Tax Reporting Now in Effect for Both Owners and Management Companies

For years, California residents have been required to pay a use tax (aka sales tax) when they purchase products from retailers outside of California. In an attempt to enforce this existing law, the California Board of Equalization (BOE) has announced it will require any California resident with gross receipts over $100,000 to register with the BOE as a "qualified purchaser" even if individual property owners and management companies have not or do not plan to purchase goods from retailers outside of California.

Here is how it works for CAA member owners and managers: If a property management company facilitates an out-of-state product order on behalf of a property owner and the invoice from the retailer comes to the owner who will directly pay for the purchase, then the owner must report and pay the use tax.

If the management company makes the purchase and then the owner reimburses the management company, then the management company is liable for reporting and paying the use tax. Either way, if both the owner and management company have gross receipts of more than $100,000 per year, both need to register with the BOE as "qualified purchasers." Complete information on this requirement can be found by clicking here.