How do I handle a transfer tax imposed by California? The taxpayer is an AZ resident. She inherited the CA house and sold it at a loss. They held $6600 for transfer tax

[caroljo]

Do I have to file anything else for California?  

[Just-Lisa-Now- · Accepted solution]

If it was sold in CA, CA will be expecting  a tax return.

Transfer tax is just another fee they charge in escrow, did it have 3 1/3% FTB withholding?

[BobKamman]

If it's the 3.33% income tax withholding, file California Form 540NR for a refund.  If there was any gain, California will allow a credit for any Arizona tax paid on it.  So if the taxpayer reduced her tax with the Arizona "100% tax credits" for schools or charities, she's screwed.  

[caroljo]

So, I need to file a California NR return?  She lost about $68000 on the sale.  She has no  California income.  So the $6600  (3.3%) is for income tax withheld.  Is that correct?

[caroljo]

She had a loss of about $68000 and there was no California income at all.  So the transfer tax is actually an income tax, correct? 

[BobKamman]

My mother used to call people from California (where her three sisters moved form Iowa) "Califoochies."  There was probably a way for your client to avoid the withholding, but one of the Califoochy preparers here might comment on that.  For now, it's water under the bridge and your fee is higher this year because of the extra work.