Effective Jan. 1, the California Investment in Real Property Tax Act (CAL FIRPTA) adds resident individuals to the list of nonresidents who are required to prepay state income taxes when closing escrow on investment property, a second home or any other home that is not a primary residence.

"One new law that went into effect this year is the new disclosure and withholding law for non­owner occupied properties," said Chuck Nunnally of Alain Pinel Realtors in Los Gatos. "If you happen to own a home that has been a rental and you're not performing a tax-deferred exchange, then the new withholding law mandates that the title company collect 3¹/3 percent of the gross proceeds and give the funds to the state."

According to the California Association of Realtors, the new law does not impose new taxes or increase existing taxes. It does accelerate the receipt of tax revenue to the tune of a projected $225 million to the state by way of withholding on the seller's taxable gain on investment properties.

The law does not apply to the sale of principal residences or to 1031 tax-deferred exchanges. It does not apply to a total sales price that is under $100,000 or to a few other transfers that are not subject to withholding requirements. Individual sellers can no longer apply for and receive a waiver from the Franchise Tax Board even if they can document that the tax owed is less than the 3¹/3 percent of the sales price withheld. However, many of the waivers previously granted are now listed as certifiable exemptions.

The California Association of Realtors calls the passage of the bill "eleventh-hour" legislation because it was amended, passed and signed by the governor as part of the package of bills that ended the budget impasse. The legislature waived the rule requiring that a bill be in print before it can be acted on. The association tried to postpone the adoption of regulations until corrective legislation could be passed, but the law became effective on Jan. 1 of this year.

"There isn't any exception for this law that I am aware of. The Realtor associations were trying to get this law delayed for implementation, as there were just too many questions that needed answering," said Nunnally, who currently has an escrow that will apply to the new law.

"I have an escrow that just opened on a $475,000 home that has been in my clients' family for years. It has been a rental, but they decided to sell it and not do an exchange. Thus, I will now get to see firsthand what the grief will be like at closing," said Nunnally. "My clients have been told of this new law, but the hard fact and reality of it won't be acknowledged until I do the sign off and they see approximately $16,000 of their proceeds held or sent to the state. It is a boondoggle of a law."

Realtor Larry Baldasano of Village Square Realty in Los Gatos said the new law is a "real hot one." "The law about the state collecting 3¹/3 percent of the gross of any non­owner occupied sale until a return is filed will result, in my opinion, in a 10 percent reduction of those type of sales in California in the coming year," he said.

Realtors will be adding another disclosure form to the pile that must be signed at the close of escrow when the California Realtor Association releases a revised standard form to reflect this new law.

Realtor Dale Klippel believes there are far too many disclosure forms but acknowledges there is a need for them due to potential lawsuits. He puts lead-based paint and mold disclosures in the category of "headliners" or those that are currently among the most important. Another disclosure form that is being used more frequently these days is a homeowners insurance coverage and claims history, since many insurance companies are no longer giving out automatic insurance policies.

When it comes to disclosure forms or keeping up to speed on new laws affecting homeowners, a Realtor is a good resource for the most up-to-date information. Checking with a tax advisor or other professional regarding new laws or disclosures is advised.

"Members of the Silicon Valley Association of Realtors get legislative alerts and other information so they can keep their clients informed on the latest issues," said Silicon Valley Association of Realtors President Judy Jarvis Ellis of Alain Pinel Realtors in Palo Alto. "Legislative advocacy is an important part of our mission. Protecting homeownership and the rights of private property owners is at the top of my agenda for the year 2003."

A 2,800-member nonprofit regional trade association, the Silicon Valley Association of Realtors (SILVAR) serves Realtors and affiliate members from Los Gatos, Saratoga, Cupertino, Sunnyvale, Mountain View and Los Altos in Santa Clara County to Palo Alto, Menlo Park and Atherton in San Mateo County. An information resource for both Realtors and consumers, SILVAR provides ongoing education programs and training, Internet access and online networking as well as mediation programs and legislative advocacy. For more information, check out the website at www.siliconvalley-realtors.org.