Wholesales & Sales Tax

6 Replies

Hi All !

I recently read a post made a few years ago regarding property taxes and wholesale deals. I'm interested in getting into wholesale deals. I plan on doing my first deal in my name, then using the funds from that to establish a business. I've seen lots of posts about LLC's, S-Corps etc. and still haven't decided on an entity yet. However, that's another topic. My question is regarding taxes. Specifically sales taxes. I know this will very from state to state. But, generally, are sales taxes required by wholesalers? If so, what is the basis for valuation on those taxes? If STax is paid at all, I would assume the assignment fee and not the total cost. Personally, I would like to legally avoid as much tax as possible. Thanks for the input.

From what I experienced, when a property is sold, you're due gains tax to the federal and state authorities, either short term or long term if you're the owner. In NY, there is another gains tax of property sales over $1 million.

As far as commissions you earned, it's subject to income tax, where you pay federal income, state income, and FICA. You may get a 1099. Never heard of a sales tax on earned income.

I have no idea where you got the idea that sales tax is due, but these are state taxes, and I've seen stranger things.

There is no “sales tax” on property or assignment fees. Most locations do have some form of “transfer fees” on the real estate itself, which occurs at closing, typically paid by the seller.

First, thanks so much for the input.  All the BP members are Great, especially those of you with experience to share for a newbie like me!  I really appreciate the help and information available on BP.  

Second, being a newbie please forgive me if I don't word my question correctly or leave info out.  Just for clarity... in my state (WV) any activity where I sell someone else's house could potentially be considered a professional real estate transaction requiring a Realtor license.  So, I do not receive a "commission" from a wholesale as receiving a commission is one of the factors regulatory agencies here weigh.  Instead, I either sell the purchase agreement via assignment, or do a "double close" purchase arrangement.  That's why my question on sales tax.  Just wondered if anyone else had run into this issue and if so how it was handled.  I want to make sure there isn't something that I'm supposed to report regardless of what's on the HUD1 sheet.

West Virginia's issues "Tax Publications" which lists what is subject to sales tax, and I don't see one for the type of transaction you're talking about, see: West Virginia Sales tax 

You go down the list of businesses and transactions involved, including motion picture, pharmacies, travel services, etc. Unfortunately I have no plans to read through all the publications. Your best bet is to call them and say you are receiving some payment for service performed and is sales tax required, without mentioning "real estate commission". Just say is there a sales tax on a commission. I doubt it because I never heard of sales tax for commissions.

Thank you Frank.  Here is the tax regulation regarding "Sales and Use Tax" in WV.  I imagine there are similar guidelines in each state.

As quoted from TSD 300 (revised March 2018) 

"The following sales and services are exempt “per se” from sales/use tax in West Virginia:

The term “per se” means by, of, or in itself. When used in the context of sales tax exemptions, it refers to exemptions that do not require a separate exemption document as proof of the exempt status. Generally, the normal documentation of the transaction is sufficient proof of the “per se” exemption. Vendors who make sales that are “per se” exempt must maintain adequate records to substantiate the exemption. 

EXEMPTIONS 

Real Property - The sale, lease or rental of real estate (land, houses, buildings and other structures attached to the land) to the same person or occupant for thirty or more consecutive days.

Intangible Property - Sales of intangibles (copyrights, royalties, notes, bonds, etc.)."

Once again, thanks all for pointing me in the right direction.  BTW, I did call the tax office and spoke to someone there.  The person I spoke with essentially stated he didn't know but assumed any activity or service that was not classified as "a professional service" would be subject to the tax.  Just goes to show that even the people who should know don't always read their own publications.  Thank you Frank for helping me out.

Hope this helps anyone else with the same question.