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  • Is property that is sold or transferred by a nonresident as part of an installment transaction subject to the withholding requirements of Section 40-18-86, Code of Alabama 1975, and if so, how is withholding on the installment sale handled?

Is property that is sold or transferred by a nonresident as part of an installment transaction subject to the withholding requirements of Section 40-18-86, Code of Alabama 1975, and if so, how is withholding on the installment sale handled?

An installment sale made by a nonresident is subject to the requirements of Section 40-18-86. The initial payment of the withholding is calculated based on the purchase price less the installment note. If the seller wishes to base the withholding on the gain, the withholding is calculated on the gain that would be recognized as a result of the proceeds received at the time of the closing. The provisions of the law regarding the percentage to be withheld and the due date to file the payment voucher and make the withholding payment to the Alabama Department of Revenue apply to installment sales in the same manner as applicable to any other sale subject to withholding under Section 40-18-86. For subsequent payments, the withholding is calculated by applying 3 or 4 percent of the principal amount included in each payment, or if the gain is used to calculate withholding, by applying 3 or 4 percent of the amount of each principal payment which represents gain. The payment voucher must be filed and the payment remitted to the Department on or before the last day of the calendar month following the calendar month within which the cumulative amount withheld for the year, less any payments already made for the year, exceeds $100. If the cumulative amount withheld for the year, less any payments already made, does not exceed $100 for the calendar year, the buyer will file the payment voucher and remit the payment to the Department on or before the last day of the month following the end of the calendar year within which the tax was withheld.

Related FAQs in Income Tax, Withholding on Sales/Transfers of Real Property and Associated Tangible Personal Property by Nonresidents

The ONE SPOT system will allow returns to be filed with ACH Debit and ACH Credit method payments only. The system will not allow an ACH Debit taxpayer to complete their return filing without completing the necessary information to authorize the ACH Debit payment. The ACH Credit payment is separate from the ONE SPOT system and must be initiated by the taxpayer through their banking institution. Returns successfully submitted for ACH Debit and ACH Credit taxpayers will be exported to the local government.

Upon the completion of the Third Party Designation Form, ALDOR can provide the returns, payments and payment data files to the authorized third party administrator.

When an electronic payment is received by ALDOR in error, the payment will post to the taxpayer’s ALDOR local tax account. ALDOR will not be able to automatically transfer these payments to the non-administered local government due to the possibility the taxpayer’s payment will reject after ALDOR has transferred the payment, causing complicated collection issues. ALDOR will need the taxpayer to advise the Department with what to do with that payment.

The only non-administered local government taxes to be processed through ALDOR will be payments received as the result of legal action, such as final assessment, garnishments, and liens, entered into when the local government was state administered. Payment data for these payments will be available during the first week (5-10 working days) of the month following the tax collection period through the ALDOR website.