Download Fundamentals 36 Script - Train Agents Real Estate Licensing

1(Insert Section 36 – 00 Beginning Slide)
FORMING A REAL ESTATE FIRM
When you form your business, there are many different types of legal entities that you
can use. This includes the forms of business known as a Limited Partnership, General
Partnership, Joint Venture, Limited Liability Company, or a Corporation. The first form
of business that we will look at is the Limited Partnership or LP.
Security Investment – The Limited Partnership is often times sold as an investment
product for the General Public. There are “public” real estate investments sold to
investors that are a securities product.
: An apartment complex is put together through a Limited Partnership security
and sold to investors in the public sector. It receives the investment money from investors
to build the apartments, own them, and collect rent. The rent is used to provide income or
dividend payments to the investors.
Limited Partnership – This is a group of partners/investors that are unincorporated. It is
a group of investors doing business as separated individuals paying tax as individuals.
The LP pays no taxes. Each investor/owner reports their share of profit and takes their
share of business deductions on their 1040 form.
Investors – If you decide to have investors in forming your real estate firm, the Limited
Partnership might work for your needs. The investors have to be “silent partners”. They
cannot take an active role in the running of the firm. If they do, they lose their protected
status as a limited partner investor.
(On the next page insert Section 36 – 001 & 001A)
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LIMITED PARTNERSHIP (LP) - AT LEAST 1
GENERAL PARTNER
Under general law, a limited partnership must have at least one General Partner (GP) who
is personally liable for the debts of the limited partnership. The general partner can be an
individual, a corporation, another partnership, etc. Whoever is named as the GP is totally
responsible for the debts of the Limited Partnership.
1. Management - The GP manages the business. The GP has unlimited liability for the
debts of the business if the LP loses money.
2. Personally Liable - Since the GP is personally liable for the debts of the LP, the GP
can lose his/her personal assets to the creditors of the Limited Partnership.
3. Compensation - The GP is usually paid compensation/salary for his/her work efforts
as well as the added financial burden.
5-(On the next page insert Section 36 – 002 & 002A)
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LIMITED PARTNERS VS. GENERAL PARTNERS
Real Estate Firm - A real estate firm is allowed by the State to provide real estate
services/activities within the State with proper registration with the Real Estate Division.
Owners do not have to be licensed to receive income FROM THE BUSINESS. However,
owners must be licensed to receive real estate commission. In other words, anyone can be
part owner of a real estate firm without being licensed. However, they cannot practice
real estate or receive compensation from real estate activities.
1. Income - A limited partner or general partner is allowed to receive profit after all real
estate services and commissions have been paid to the licensed sales staff. Profit is not
considered commission and can be paid to non-licensed owners.
2. Expenses - Expenses that your real estate business experiences such as rent,
commissions paid to licensees, telephone, etc., can be taken by each owner in proportion
to their ownership percentage. This is applied against any profit and deducted on their
personal 1040 form.
3. Tax Deferred Income - Since the expenses are taken, they can be applied against
income from the business. Further, the limited partners can apply their invested dollars
against the income and delay tax until their interest is sold.
: Investor A is a limited partner and invested $20,000 in the firm. She
experiences, after deductions, a net profit of $14,000 for the year 2009. She can take her
$20,000 investment and apply it against the $14,000 and pay no tax on the $14,000 for
the year 2009.
4. General Partner - Since every limited partnership has to have at least ONE general
partner; the general partner enjoys the same status as limited partners regarding income
and expenses taken on his/her 1040 Form.
a. Liability Exposure - The general partner, however, has an extreme liability
exposure while the limited partners do not.
b. Running the Operation - Since the general partner is an active participant in
running the real estate firm, the general partner is personally responsible for the
debts/liens and lawsuits against the firm.
Review - Investors in a real estate firm do not have to be licensed. Unlicensed investors
cannot pursue real estate activities. Only licensees can pursue real estate activities and
receive commission. Once all the expenses and commissions to licensees have been paid,
investor/owners are allowed to receive profit (moneys that are left) that the real estate
firm experience.
7-(On the next page insert Section 36 – 003 & 003A)
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GENERAL PARTNERSHIP - GENERAL PARTNERS
ONLY
In a general partnership, all of the partners take an active role in the running of the
program. The GP is unincorporated.
D.B.A. General Partnership - A business entity doing business as a general partnership
(GP) causes all investors (GPs) to be personally liable for the debts of the general
partnership.
Example: There was an accounting general partnership that had 747 partners. They
were all personally sued in a class action lawsuit.
A general partnership is not a legal entity. It cannot be sued, it does not pay taxes. All
partners have to pay tax individually. All partners can be sued.
9-(On the next page insert Section 36 – 004 & 004A)
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JOINT VENTURES - TEMPORARY GENERAL
PARTNERSHIP
A joint venture has all the same characteristics of a general partnership (unincorporated),
but it is formed to complete a specific task. Once that task is completed, the joint venture
is terminated.
Example: 3 incorporated construction firms band together under a joint venture
agreement to build a high rise building in Salt Lake City. Once the building is complete,
the joint venture is disbanded.
It Has the Following Characteristics:
1. Unlimited Liability - All the members/participants of the joint venture project will
have unlimited liability. If the specified project goes under, the members of the joint
venture are personally liable for the project.
2. Management - All members/participants are involved in the overall management of
the specified project.
Joint Venture - Participants
1. The Members/Participants - The members/participants of a joint venture are similar
to a general partnership. They are jointly and severalty responsible for the project as it is
being completed. The participants in the joint venture project can be individuals,
partnerships, corporations, etc.
2. Legal Status/Investors only - The joint venture, in itself, is NOT a legal entity. It is
simply a group of participants banding together for investment purposes. If the
participants/investors choose to form a temporary corporation, the corporation would be a
legal entity; not a joint venture.
11-(On the next page insert Section 36 – 005 & 005A)
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CORPORATION
A standard corporation, known as a C Corporation, is a registered legal entity. We never
say a "C Corporation"; it is simply known as a corporation. All corporations are
registered within a State where it was incorporated.
: Originally, Microsoft was a New Jersey corporation. It was formed and
registered within the State of New Jersey. It enjoyed the legal protection and tax status of
a New Jersey business.
A corporation has the following characteristics:
1. Legal Entity - A corporation is a legally created entity. It is a legal person. It can sue,
it can be sued. It pays taxes and can legally own personal and real property. No other
form of business can do this. With all the prior business forms the owners/investors pay
the taxes on received profits. They take business deductions as deductions on their 1040
form.
2. Ownership - The owners of a corporation are the shareholders of the corporation. The
owners of the corporation's common stock are only able to vote for the management
(Board of Directors) team of the corporation.
3. Lawsuits - When a corporation is sued in a civil case, the shareholders/owners
normally can not be sued personally. The injured party suing the corporation cannot pass
through the corporation's shield to sue either the management or the stockholders. Some
States now allow parties to sue those individuals who head the organization; officers and
the board of directors.
4. Disadvantage - The disadvantage of a corporation is that it is subject to corporate
income tax by the Federal Government as well as some States that have an income tax.
The corporation pays income tax on profit and the investors pay personal income tax
when the corporation pays them net profit known as dividend payments. This means that
profits of a corporation experience double taxation.
13-(On the next page insert Section 36 – 006 & 006A)
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Sub-Chapter S Corporation
Sub S Corporation - A Sub-Chapter S Corporation varies from a regular corporation in
that it can only have 70 stockholders. It is designed for the needs of a small business with
very few owners/stockholders. It was originally designed to be a corporation for a family
owned business, but has been expanded and given tremendous tax advantages through the
Clinton and George W. Bush administrations.
S Corporation - The Sub-Chapter S Corporation has the same characteristics as a regular
corporation with the corporate shield in place. Civil suits cannot be issued against the
stockholders/owners personally. The main difference is the tax structure.
1. No Corporate Tax - A Sub S corporation pays no tax. There is no corporate income
tax placed on a Sub S corporation either by the IRS or the involved State.
2. Stockholder Income - Only the stockholders pay income tax on their share of the NET
income experienced by the S corporation.
a. No Sheltered Income - The NET income (after deductions) of the corporation
will be declared as income by each stockholder. The stockholders/shareholders
cannot utilize the deductions or their investment against the profits of the
corporation.
3. Not A Salary - Income received by stockholders is considered to be cash dividends
and not salary.
a. No FICA Tax - Since the income is considered a dividend and not salary, the
stockholders do not have to pay FICA (Social Security) tax on the income. If a
stockholder works for the S Corp. WITHOUT a declared salary, the income
he/she receives from the S Corp is a dividend and not salary. Therefore, the
money received by the working stockholder is not subject to Federal payroll tax
or State insurance fees such as unemployment tax and worker's compensation
insurance.
b. Employee Responsibilities - The Sub S Corporation would have the regular
employer responsibilities for its employees/staff, however. For those who are not
stockholders, but employees, the Sub S would have to provide the standard
requirements of payroll tax, withholding tax, and State employer fees for
unemployment insurance and worker's compensation. For a real estate firm, the
licensees working under the firm as agents of the firm are considered selfemployed and not employees. The Sub S firm would not have to provide these tax
services and State insurance for its agents.
15-(On the next page insert Section 36 – 007 & 007A)
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LIMITED LIABILITY COMPANY (LLC)
The Limited Liability Company is the newest company that a firm can be formed under.
It is kind of a hybrid of the limited partnership and a corporation all rolled into one. An
LLC has the following characteristics:
1. Investor Shield - The owners/investors of a Limited Liability Company enjoy being
shielded from lawsuits personally. If investors do not take an active roll in running the the
firm (not active), they have no liability exposure. This is similar to being a limited partner
in a limited partnership.
2. Active Investors - If an investor is active in running the business, they also enjoy the
status of limited liability and are not subject to personal lawsuits. At least this is the
theory of the limited liability company (LLC). Unfortunately, there have been some
penetration cases lately where this has not been the case. Especially when fraud is
involved. This penetration factor is something for your lawyer to work out if you choose
to do business as an LLC.
3. Tax Status - An LLC is not a tax paying entity such as a C corporation. The
investors/owners within the LLC have the profits and deductions of the firm flow through
to them directly. They take the deductions and declared income on a proportionate basis
and place them on their personal income tax (1040) form.
Announcement - If a firm is to do business as an LLC, it is required to stipulate that it is
an LLC. It "should" be on all letterhead and firm communication with the business world.
This serves notice to possible creditors of the firm's status when doing business with the
LLC.
No FICA Tax - Since the income is considered profit and not salary, the investors do not
have to pay FICA (Social Security) tax on the income. If an investor works for the LLC
WITHOUT a declared salary, the income he/she receives from the LLC is income and
not salary. Therefore, the money received by the working investor is not subject to
Federal payroll tax or State insurance fees such as unemployment tax and worker's
compensation insurance.
Employee Responsibilities - The Limited Liability Company would have the regular
employer responsibilities for its employees/staff, however. For those who are not
investors, but employees, the LLC would have to provide the standard requirements of
payroll tax, withholding tax, and State employer fees for unemployment insurance and
worker's compensation. For a real estate firm, the licensees working under the firm as
agents of the firm are considered self-employed and not employees. The LLC firm would
not have to provide these tax services and State insurance for its agents.
17-(On the next page insert Section 36 – 008 & 008A)
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GOVERNMENT REGULATION OF REAL ESTATE
SECURITIES
All real estate securities that are sold interstate (across State lines) must be registered
with the Federal government through the Securities and Exchange Commission (SEC).
The following are exempted from SEC regulations:
1. Private Offering - An interstate private offering. This is when an investment is
offered to only a limited number of knowledgeable investors and not the general public.
2. Intrastate Offering - An intrastate offering. Securities that are offered to only
residents within one State. The program is not sold across State boundaries. If this is the
case, only the State of the sale would have jurisdiction. Most securities offered must be
registered with the Securities Division Departments of Licensing under the State's
Security Law
REAL ESTATE SECURITIES
1. Real Estate Securities - If a security interest involves real estate investments, it is also
subject to the rules of the Real Estate Division of the State.
a. Salespersons - Any person selling real estate securities must be licensed by the
Real Estate Division AND registered with the Securities Division. The actual
licensing requirement depends on what the salespersons are selling; check with
each division.
19-(On the next page insert Section 36 – 009 & 009A)
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SOLE PROPRIETORSHIP
When an individual starts his/her own business without utilizing the before mentioned
business forms, it automatically becomes a sole proprietorship. The individual has no
investors. The individual has no partners. It is simply an individually owned business.
Sole Ownership = Sole Proprietorship
1. Total Responsibility - The individual forming a business is completely and totally
responsible for debts, caused injuries, contracts with clients, vicarious liability, employee
actions, etc. All injured parties can come after the personal assets of the sole proprietor.
2. Doing Business As (DBA) - If the individual gives a name to his/her business, it is
known as a DBA.
: Helen Smith doing business as Helen's Cafe. The DBA serves notice to
creditors that Helen is the sole owner and responsible for all the activities of the cafe.
3. Credit Standing - The sole proprietor is the business. Whatever the business does
financially, the individual does financially. Whatever the individual does financially, the
business does financially. They are not separated.
21-(On the next page insert Section 36 – 010 & 010A)
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REGISTRATION OF YOUR BUSINESS
Regardless of how you decide to do business, you will have to register your business with
the Internal Revenue Service and the State, County, and City where you are located.
There are a lot of different fees, licenses, taxes, and reporting responsibilities that you
will be responsible for.
Registration - The purpose of registration is to serve notice to the public that there is a
business in existence.
1. Internal Revenue Service - One of the first things you will have to do is apply for a
National Employer Identification Number (EIN) through the Internal Revenue Service.
This business number is utilized by many different entities. This includes banks for your
bank account, landlords for lease contracts, the phone company, etc. Some States will use
the EIN for their State records.
2. Social Security/Medicare (FICA) Tax - The EIN will be utilized by the IRS for your
responsibility of withholding tax and FICA tax for your employees.
3. State Responsibilities - You will have to register with each State where you will be
doing business with. Each State has its own procedures and applicable business licenses
and taxes that have to be paid. If you have employees, each State will require
unemployment insurance and worker's compensation protection for your employees. You
will have to pay into these required areas.
4. Local Responsibilities - Most States will require that you register your business with
the County and any municipality that you plan to do business in. Each will have its own
requirements, licenses, fees, and possible taxes.
Responsibilities - As you can see, starting a business is big responsibility. This is why it
is best to sit down with a business lawyer and CPA to discuss your plans. Their job is to
help you decide which business form is best for your needs and plans for the future.
23-(On the next page insert Section 36 – 011 & 011A)
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WASHINGTON TIME-SHARE ACT
The Washington's Time-Share Act was aimed at the time-share resort programs that are
available to the public:
1. Jurisdiction - This law takes effect if the right to occupy a unit or any of several
units is limited to 3 or more separate time periods over a period of at least 3 years.
Example: An investor is only allowed to use a unit once a year over a 3 year period.
The law also includes renewal options for periods beyond the 3 year period whether or
not the option is coupled with an estate in land. This means that the investor would have
use of the complex on a life estate basis. The following are the common characteristics of
Time-Share Condominiums:
a. Recreational - Most Time-Share Condominium programs are for use as
recreational condominiums. Investors are usually given use of "their unit" 3 times
a year. These 3 time periods are spread out through the calendar year.
Example: Use in the months of March, August, and October.
b. History - The first sale of recreational condominiums in the USA was in
Hawaii in 1971. There were no laws in place at the time and the sales were not
regulated at all.
c. Washington Regulation - Washington State passed its Time-Share Act in 1983
to regulate sales practices. It is designed to provide information (disclosure) to
investors regarding costs and future commitments.
2. Registration - Time-Share offerings must be registered with and regulated by Real
Estate Department of the Department of Licensing before any sales efforts can be made.
All contracts of sale and marketing material must be on file with the Department.
3. Disclosure - All advertising and marketing of a time-share program must provide all
prospective purchasers with a pre-approved disclosure statement before documents are
signed. The approved disclosure statement must state all financial responsibilities for
purchases in specific detail. Another name for the required disclosure statement is a
PROSPECTUS.
2007 Ruling / Brokers Can Sell - A brokerage firm can sell a client's time-share
ownership. This is only allowed if representing an owner and NOT the time-share
Company. The brokerage firm CANNOT have an inventory of units for sale on a
continual basis. If so, the brokerage firm would have to register as a time-share company.
25-(On the next page insert Section 36 – 012 & 012A)
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WASHINGTON STATE - TAXATION OF REAL
ESTATE
Property Taxes - Washington State allows the Counties to levy property tax on real
property for businesses and individuals. They also can levy property tax on personal
property (chattel fixtures) of commercial businesses.
1. County Jurisdiction - Counties are allowed to assess property tax on both real and
personal property within their jurisdiction. Each County has a tax rate per thousand that it
levies against assessed property values. Assessed value is NOT market value or appraised
value. Assessed value is determined by the County and is based on sales of property
within its boundaries.
a. Tax Rate (Millage Rate) - The tax rate, also known as the millage rate, is
determined by the County. This rate is applied against the assessed value of the
taxable real and personal property.
b. Tax Amount - The property tax amount for given property is assessed at the
County's tax rate per $1,000 of assessed value.
Example: Let's say that a County's tax (or millage) rate is $13 per thousand.
Calculation of tax would be as follows:
1) Example: Property is determined to be $150,000 of assessed value. If the tax rate is
$13.00/$1,000, the County would multiply: 150 x $13.00 = $1,950 of property tax.
c. Constitutional Maximum - Washington State has a constitutional maximum
of 1% of true cash/assessed value which is $10.00 per $1,000 (or $10/$1,000). No
county can exceed this amount without voter approval.
1) Increases - Though the maximum is 1% of assessed value, the voters within specific
boundaries may approve additional levies up to a total maximum of 6% in any one
budget year.
2) Example: In 2000, the tax (millage) rate in King County and the City of Seattle was
1.2% of assessed value or $12 per thousand. Of this $12 amount the following received:
King County $1.81, State School fund $3.02, Seattle $3.72, Seattle School Dist. #1,
$2.96, Port of Seattle $ .21, and Emergency Services $ .28.
27-(On the next page insert Section 36 – 013 & 013A)
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TAX YEAR SCHEDULE
The tax year is CALENDAR YEAR (Jan. 1 thru Dec. 31) - Tax requirements have to be
met within specific time periods regarding payment. The payment dates are universal
among all counties. These dates would be utilized when closing a real estate transaction
and determining how much tax is required of the seller and how much tax is required of
the buyer within the calendar year.
29-(On the next page insert Section 36 – 014 & 014A)
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TAX PAYMENT EXAMPLE
Example: a $1,200 annual tax due on an owner’s property.
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SELLER / BUYER TAX RESPONSIBILITY
Property taxes need to be prorated at time of sale of the property. Traditionally, the seller
pays the tax up to the date of closing. The buyer owes all property tax from the day of the
closing up to the end of the year.
1. Tax Prorating - Dividing the expense of paying the property tax fairly between the
seller and the buyer.
a. Seller Responsibility - The seller owes for time he/she legally owns the
property. This would begin from the 1st day of the year up to the day before
closing. You will undoubtedly be expected to calculate the amount of tax that the
seller has to pay at the time of closing.
b. Buyer Responsibility - The buyer owes from the day of closing to end of year.
Example: The annual tax on a property was $1260. The house sold on September
14th, and the seller had paid the taxes on April 1st. What is the prorated tax responsibility
for the seller and the buyer?
1) Tax Year - In Washington the tax year runs from January thru December. The seller
has already paid for the period that ran from January 1st thru June 30th (or 1/2 of the
year).
33-(On the next page insert Section 36 – 015 & 015A)
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EXAMPLE: SELLER & BUYER TAX PRORATION
Below is an example of a buyer and seller paying their pro rata share of
Property Tax.
35-NO SLIDES FOR THIS PAGE
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SALE OF REAL ESTATE - EXCISE TAX
The excise tax is an equivalence of a State sales tax on the sale of property. It is not at the
same tax rate as regular sales tax that is paid on purchased goods. In the past the State
had a conveyance tax and revenue stamps that had to be paid when property transferred at
closing. This was repealed in 1987 and the current system of taxation is now in place.
Excise Tax vs. Sales Tax - The State has a tax on sale of real property which is called an
Excise Tax. If it is a tax on personal property it is simply called a Sales Tax. What we
are going to look at is the excise tax that is placed on the sale of real property.
1. Excise Tax - The excise tax is a percentage of the selling price that the seller has to
pay. The tax is based on the "Full Actual Consideration" of the property this is purchased.
The full actual consideration amount is the actual value of the real property that was
purchased.
Example: If Ms. H purchased a home for $330,000, the seller would pay an excise tax
on $330,000.
2. Tax Rate - The excise tax rate changes from time-to-time due to changes in the local
surtax by the Counties. The maximum tax rate cannot exceed a total of .029 (2.9%). The
State obtains a full 1% and the Counties can tack on up to an additional 1.9% for a total
of 2.9% State excise tax rate .01 (1%) +Local excise tax rate .019 (1.9%) Maximum .029
(2.9%) of the sales price.
3. Purpose - The main purpose of the real estate excise tax is to provide funds for the
common school fund. These proceeds are utilized equally throughout the State. The
additional tax that Counties can add on is also used to provide for the schools in its
jurisdiction.
4. Obligation of Seller - The seller is responsible to make sure that the excise tax is paid
to the applicable County. The moneys are sent to the County Treasurer's Office.
5. County Treasurer - When the County Treasurer receives the excise tax, the Treasurer
will stamp the deed showing the tax was paid.
a. Recording the Deed - A necessary condition for the filing and recording of a
deed or contract is to show that the excise tax has been paid. The County
Treasurer's stamp is required in order to record a deed with the applicable County.
b. No Tax Due - If no tax is due on the sale, the Treasurer notes that the
transaction was exempt and stamps "exempt" on the deed or contract.
Example: An exempt transaction would be property that is purchased by the County.
The deed would be stamped exempt.
37-(On the next page insert Section 36 – 016 & 016A)
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FILE EXCISE TAX AFFIDAVIT
To clarify the sales price for the County Treasurer, either the seller, buyer, or their agent
must file a "Real Estate Excise Tax Affidavit". This is usually done by the escrow
company handling the sale. This is a sworn statement of total purchase price of the
property being transferred. It also states when the excise tax will be paid.
1. Tax Due Date - The excise tax is due and payable at the time of sale/closing.
a. 30 days - If not paid within 30 days of closing, the County will charge 1%
interest per month on the delinquency tax amount.
Example: If the excise tax was $1,000, the County can charge $10 every month of
delinquency.
b. Penalty - If a delinquency was a result of trying to evade the tax, an additional
50% penalty is charged on top of the monthly fee and actual tax.
2. Taxable Sales - Not all sales are subject to the excise tax. The following would require
the payment of the excise tax.
a. Conveyance of Title - Whenever property is conveyed for valuable
consideration an excise tax is due OR whenever a deed or land sales contract is
given from one party to another OR whenever there is an assignment of a
purchaser's (vendee's) contract.
b. Title Transferred - Anytime legal title or equitable title is given to a new
person and that new person is also gaining possession of the property the title is
transferred. This can even include lease-options if the title is being transferred.
39-(On the next page insert Section 36 – 017 & 017A)
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NON-TAXABLE SALES - NO EXCISE TAX IS DUE
The following types of sales are exempt under the excise tax rules. If one of the following
transfers were complete, the County Treasurer would stamp the deed "exempt".
1. Gifts - Whenever transfers are by gift, devise, inheritance, or by divorce settlement
there is no excise tax due. This is because there is no valuable consideration paid for the
real property in question.
2. Security Devices - The sale of mortgages and trust deeds are exempt from excise tax if
no title transfer is involved. This is simply changing or creating a lien on the property in
question.
3. Correction Deeds - The filing of correction deeds is simply making corrections to the
title. There is no title transfer involved. It is simply "clearing a cloud" on title.
4. Fulfillment Deeds - The filing of a fulfillment deed for a real estate contract is not
conveying title. If the original contract was previously recorded and excise tax was paid,
it would not have to be paid again at conveyance of equitable title.
5. Spousal Transfers - If a transfer of title is between a husband and wife or between a
parent and child, it is considered to be a gift, devise, inheritance, or divorce settlement
and they are exempt.
6. Assignment of Sales Contract - If a seller's (vendor's) assignment under a real estate
contract (contract and deed) is sold/changed, there is no title transfer, no new possessor,
just the sale/discounting of the note. This would be similar to a party selling a mortgage
to another which is exempt.
7. No Full Actual Consideration - If a deed is recorded where the seller receives no
funds for equity ownership, there is no valuable consideration. If this is the case, no
excise tax has to be paid.
Example: Ms Z sells her property to the Girl Scouts for $1.00.
8. Foreclosure - The filing of a sheriff's deed.
41-(On the next page insert Section 36 – 018 & 018A)
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EXCISE TAX EXAMPLES
Note: Since the excise tax is subject to local variables, we will use 2% as a
hypothetical rate.
Example: Title is transferred on the sale of a house where the sale price was
$100,000.
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SALE OF A MOBILE HOME
Mobile homes present unique problems in determining the property tax that is due
because a mobile home can be real property or it can be personal property depending on
circumstances.
1. Real vs. Personal property - Mobile homes present a problem to Counties regarding
the two different forms of property that mobile homes can become. The Counties utilize
the same definitions that we discussed earlier regarding personal versus real property.
2. Personal Property - A County will tax a mobile home as personal property under the
following situations:
a. On a Sales Lot - When mobile homes are up-for-sale on a mobile home sales
lot, they are treated as inventory. Counties have an actual inventory tax that is
placed on all inventories of retail operations. Basically, this is a tax on personal
property of businesses.
b. On Private Property that is Leased - When a mobile home is located in a
trailer park (leased property), it is treated as personal property. The owner has to
pay the vehicle registration fee. With the lowering of vehicle registration fees to
$30 by the State, this is a low fee. Local governments can tack on their fees to the
$30 State fee, but this is much lower than if the mobile home owner had to pay
property tax.
c. Taxation When Selling - If a mobile home is personal property at time of sale,
it is subject to full retail sales tax. The county will determine this high rate of tax
if mobile home are:
1) Sold from a Sales Lot - When selling retail goods to the general public, the buyer has
to pay a retail sales tax. The two characteristics that require the payment of sales tax is
whether the mobile home is:
A) Personal Property at Time of Sale - If the owner of the mobile home (sales
lot) declared the property as personal property (inventory tax) the buyer must pay
tax.
B) Must be Moved at Time of Sale - When most buyers purchase a mobile
home, it is located on a lot and must be moved to another location. This is a
characteristic of retail goods. If it is moved to lease land, it is personal property
and not real property.
45-(On the next page insert Section 36 – 019 & 019A)
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MOBILE HOME AS REAL PROPERTY
A County will tax a mobile home as real property if the following situations occur:
1. Owned Land - If a mobile home is placed on land owned by the mobile home owner,
it transforms to real property.
2. Fixed Foundation - If a mobile home is at a fixed location, on a foundation (blocks or
posts) with the axles/wheels removed and with fixed pipes to sewer, water and utilities, it
is determined to be real property.
3. County Tax Roles - If ruled real property with the above definitions, it will be carried
as real property and subject to annual property tax.
a. Excise Tax - Once ruled real property, the mobile home would be subject to
xcise tax at time of sale. This characteristic means the following:
1) Lower Taxes - Since the mobile home is real property, it would be subject to the
lower excise tax at the time of sale instead of the higher retail sales tax.
2) With the Land - Since the mobile home is ruled real property it may not be moved as
condition of sale.
3) Affidavit of Excise Tax - Since the mobile home is ruled real property, a sold mobile
home requires that an affidavit of excise tax must be filed within 30 days of sale with the
County Treasurer.
4. Licensee Responsibility - When you, as a licensee, get involved with the sale of a
mobile home it is important that you find out from the seller the status of the mobile
home. Is the owner paying property tax? If so, it is real property. Is the owner not paying
property tax? If so, it is personal property. Is the owner only paying tax on the land??? If
so, there could be a county tax problem for the seller at the time of the sale of the mobile
home. If you are representing the buyer, the difference of excise tax vs. retail sales tax is
important to your client.
47-(On the next page insert Section 36 – 020 & 020A)
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