KeepUP™ Blog

With 2023 right around the corner, we wanted to call your attention to new changes to the unclaimed property laws in Washington and Maryland.

WA S 5531

Washington joins the RUUPA states (states that model their unclaimed property laws on the 2016 Revised Uniform Unclaimed Property Act), with WA S 5531, effective on January 1, 2023. Here is a summary of the key changes:

• While dormancy periods generally remain the same, it is important to review property types and trigger dates for escheatment, as those have changed for some property types. All holders should note that that Washington, like other RUUPA states, introduces new property types eligible for escheat, including health savings accounts and custodial accounts, and while a specific dormancy period for virtual currency is not included, the term is defined. Generally, the new provisions follow RUUPA, except Washington uses the current federal RMD age of 72 in the retirement provision.

Enacted and made effective on June 30, 2022, Delaware SB 281 makes significant changes to Delaware’s unclaimed property law. Holders currently under audit or who are participating in a voluntary disclosure program (VDA) with Delaware’s Secretary of State (DE SOS), as well as holders in litigation should take note that many of these new provisions apply retroactively.

Below is a summary of the key provisions:

Enforcement: Verified Reports and Compliance Reviews

• While the Department of Finance is required to notify a holder of the opportunity to participate in the Secretary of State’s VDA program before it can initiate an audit, the new law allows the state to initiate an audit if a holder has not responded to or completed a verified report or compliance review, without requiring such notice.

• The state can request a verified report or initiate a compliance review for any reason, whereas prior to the new law, the state needed reason to believe that the holder had previously filed an inaccurate, incomplete, or false report.

The West Virginia State Treasurer’s Office (WVSTO) recently confirmed that holders will need to follow the changes made to their unclaimed property law as a result of the passage of House Bill 4511, which becomes effective June 10, 2022, for the upcoming Fall reporting cycle.

This short turnaround time for holders to become compliant with the new law highlights the need for holders to actively monitor legislative, regulatory, and administrative activity.

On March 29, 2022, the U.S. House of Representatives voted almost unanimously in favor of SECURE Act 2.0, also known as the Securing a Strong Retirement Act (H.R. 2954). SECURE Act 2.0 expands upon the retirement savings solutions set forth in the SECURE Act, which passed in December 2019.

We recently posted about CA AB 466, which became effective on January 1, 2022, authorized the Franchise Tax Board (FTB) to share information with the State Controller’s Office (SCO) related to compliance with California’s unclaimed property law. As a result, businesses must now provide the following information on business tax return forms:

• Has the entity previously filed an unclaimed property report with the SCO?
• If so, what was the date of the most recent report?
• What was the amount last remitted?

On February 16, 2022, a new bill was introduced in California, AB 2280, wherein the Legislature again references the FTB, estimating that since 2020, approximately 1.3 million business that have filed taxes with the FTB have failed to report unclaimed property to the state.

With Spring reporting due dates around the corner, holders are busy reviewing due diligence responses, and updating and reconciling their files. But what if a holder is already aware that they will not be ready to file timely reports to the states?   While businesses continue to feel the strain of the pandemic, in the form of staffing shortages and postal service disruptions, holders may also experience other business interruptions that could lead to reporting delays, including implementing new accounting systems, changes to transfer agents or other personnel changes, or undergoing a merger or acquisition.   In these cases, it is worthwhile to consider whether a reporting extension is available.

California AB 466, effective on January 1, 2022, provides the authority for the Franchise Tax Board (FTB) to share information with the State Controller’s Office (SCO) pertaining to a taxpayer’s compliance with California’s unclaimed property laws. To accomplish this, the FTB has added various questions to business tax returns for 2021, including:

• Whether the business entity previously filed an unclaimed property Holder Remit Report with the SCO.

• If so, the date of the most recent report.

• The amount last remitted.

Note that while this post uses the terms gift certificates and gift cards interchangeably, states generally define these terms either in their unclaimed property or general business law.

New York State Comptroller Thomas P. DiNapoli recently encouraged gift certificate owners in the state to spend their holiday gift certificates before they become lost, subject to inactivity fees or dormant.[1] Under New York’s unclaimed property law, gift certificates have a 5-year dormancy period, after which they must be reported as unclaimed property. Under state unclaimed property laws, businesses must report unclaimed funds to the states in accordance with the priority rules set forth by the U.S. Supreme Court in Texas v. New Jersey. [2] Under the first priority rule, property is reported to, or escheats, to the state of the owner’s last known address, according to the books and records of the company (a.k.a., holder). If the last known address is unknown, the property escheats to the holder’s state of incorporation (corporate domicile).

Merger and acquisition (“M&A”) activity is as dynamic as it ever has been even during the on-going global pandemic. The unclaimed property consequences of M&A transactions, however, tend to be an afterthought. Even when unclaimed property compliance is identified as a potential issue, it is most often only reviewed at a very high level, which may result in future problems. 

Holders have a statutory obligation under states’ unclaimed property laws to perform a final outreach to owners of unclaimed property before reporting the property to the state, known as a due diligence mailing. This mailing is the final attempt by the holder to reach the owner, thereby putting the owner on notice that if the owner fails to respond to the holder regarding his or her property within a certain period, the holder will be required by the state to escheat the property to the state.

Due diligence requirements, including the timing of the notice, the dollar amount above which notice is required, the method of delivery and even the content of the letter varies among the states. Performing due diligence is not only an important part of a holder’s compliance obligations, but it also aligns with the goal of the unclaimed property laws, which is to reunite the owner with his or her property, and reunification also assists holders with customer retention and satisfaction.