As a holder advocate, one of the most frequent questions we receive is whether a company with multiple subsidiaries and entities under its corporate umbrella can file consolidated unclaimed property reports. The unclaimed property compliance environment is complex, frustrating, and demanding for corporate America, and complex organizational structures don’t make it any easier to navigate. Conducting unclaimed property filings on a consolidated basis can create efficiencies for many holders. However, a number of factors should be considered when determining the right approach for your particular organization.
Consolidated unclaimed property filings are similar to other consolidated financial filings such as income tax filings and financial statements. Consolidated unclaimed property filings consist of one report sent to each state or filing jurisdiction, usually by a parent company, on behalf of multiple subsidiaries. This single report contains all property that would have been reported if separate reports had been prepared for each individual entity.
Consolidated reporting simplifies and streamlines the reporting process and tends to be more cost effective regardless of whether the filing process is managed internally or outsourced. It is particularly beneficial for companies with a substantial number of subsidiaries that would otherwise consistently file zero or negative reports due to limited or no unclaimed property activity. It may also be the simplest approach for companies who already consolidate financials or are running a common paymaster across its various entities.
While there are benefits of a simplified process, there are several factors to consider before deciding to file consolidated unclaimed property reports.
Acceptance By State: Prior to filing consolidated reports, check the state statutes and administrative rules regarding consolidated reports to understand each state’s position and requirements. As of this writing, most states accept consolidated reports. However, you should verify the ongoing acceptability of consolidated reporting as states commonly change filing requirements.
Nevada is an exception to this in that it expressly forbids consolidated reporting. Nevada’s holder reporting manual states that “All holders, including business associations, banking and financial organizations, utilities and other legal entities, are responsible for filing individual reports on behalf of their branches, divisions, and other affiliated entities.” In addition to this language, Nevada writes in its holder reporting manual: “CONSOLIDATED REPORTS WILL BE RETURNED UNPROCESSED”.
In contrast to Nevada, the State of Texas passed HB 3598 earlier this summer, requiring consolidated reporting for all holders going forward. Specifically, the bill states that “if a holder that is required to file a property report under this chapter is a member of an affiliated group, the holder shall file one report for the affiliated group.” An affiliated group is defined as “one or more entities in which a controlling interest is owned by a common owner, either corporate or non-corporate, or by one or more of the member entities.”
Entity Classification: It is important to understand the type of entities that are to be included in the consolidated filing. From the states’ perspective, not all entities are the same, and different filing classifications carry different reporting requirements and filing timelines. This is particularly true for industries such as insurance, banking, and utilities. Consequently, holders may not be able to combine entities with different filing classifications (e.g., an insurance holder and a corporate entity) into one report.
Owner Unknown Property: If an owner’s address is incomplete or unknown, the property is required to be reported to the holder’s state of incorporation. In consolidated reporting, it is therefore important to ensure that these owner unknown properties are attributed to the actual obligor and reported to the applicable state of incorporation as opposed to the parent company’s state of incorporation, or that of other related entities, as these may be different.
Acquisition/Divestiture Activity: Another area to consider is your organization’s acquisition and divestiture activity. For organizations with frequent acquisitions and/or divestitures, consolidated reporting may not be an effective reporting mechanism. The consistent movement of these entities in and out of the overall organization can create unique unclaimed property reporting challenges, particularly if the financials for these companies are being maintained separately.
Consolidated reporting can significantly reduce a holder’s reporting resource requirement and is a worthwhile consideration for holders seeking to streamline and improve the unclaimed property reporting process. However, holders should also consider additional factors, including state requirements, organizational structure, and acquisition and divestiture activity when determining their individual approach and the degree to which they may want to consolidate reports.
Engaging with an unclaimed property professional to understand if consolidated filing is right for your organization could prove beneficial to ensure you are maintaining compliance and assist you with the creation of policy & procedure to maintain a healthy escheat compliance program.