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March 16, 2010

**Real Estate Witholding Taxes Coming to Delaware?** Delaware officials have been circulating a proposed bill that would require non-residents to pay a witholding tax upon the sale of Delaware real property. This would affect the sale of vacation homes and investment properties by individuals and entities who are not Delaware residents. The current draft of the bill, which has not yet been introduced, would require the non-resident seller to calculate and pay taxes on anticipated gains. The current draft of the legilation would extend to members of pass-through entities (such as limited liaility companies and limited partnerships) who are not Delaware residents. In other words, if the seller is a Delaware limited liability company, but one of the members is not a Delaware resident, then that member would have to calculate and pay the tax. The tax would have to be paid before the deed is recorded.

This concept is not novel and, given today's economic climate, we certainly understand the State's desire to collect applicable income taxes from non-residents. Maryland already has a similar law and it works fairly well. However, the current draft of the proposed Delaware legislation is a bit more cumbersome in that it requires a seller to make tax calculations prior to the sale, which can present a challenge to a seller who does not have a tax advisor. Maryland's law, on the other hand, has a safe harbor of 7.5% (8.25% for entities) of the net sales price.

We will post updates when and if this legislation is introduced.



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