Did you know that you could have no offices, employees, or other presence in a state or other reporting jurisdictions* and still be required to file unclaimed or abandoned property reports there?
That's right, nexus is not required, much to the surprise of many companies' compliance efforts.
Unclaimed property compliance is generally handled by a company's finance and accounting departments, with occasional input from legal as the need arises. CPAs and other accounting professionals are accustomed to the idea of nexus creating an obligation to report and remit state or local taxes. Unclaimed property liability arises from property rights, not from taxes, thus alleviating the need for nexus to trigger an obligation to report and remit to a particular state.
It didn't even require an act of Congress to accomplish this feat.
How the States Treat Unclaimed Property
Unclaimed property statutes can be found in a multitude of locations within a state's codified laws. Some states' treatment harkens back to the days of English-style escheat where the property returns to the Crown by including it in their estates and wills section of the code. Other states include unclaimed property statutes within the real property sections. Some states, like Arizona, use a more modern approach and include it within the trade and commerce or business codes. Meanwhile, New York includes abandoned property as its own subject. In short, without knowing a specific code section, you may have to search multiple parts of a state's statutory code to find the applicable unclaimed property law.
While the code sections are hard to find, it may be even more difficult to determine the rhyme or reason to where a state places the responsibility for administration of the unclaimed property laws. Some states, like Georgia, administer the law through the Department of Revenue, which many companies are familiar with through the administration of many state taxes. Oregon, on the other hand, administers the laws through the Department of State Lands. Other offices include the State Treasurer, the State Comptroller, State Auditor, Department of Commerce, and State Finance Departments. These different offices reflect both the historical justification of unclaimed property with the modern application coupled with state politics.
A lost shareholder, a vendor or a customer could all trigger obligations to file in a particular state, even without further presence in the state. Each reporting jurisdiction has its own laws and regulations, including dormancy periods, exemptions and deductions, deferrals, due diligence obligations and reporting deadlines, that companies must adhere to. This creates a complicated compliance process for companies with limited contacts to a particular jurisdiction.
Some states may defer your reporting obligation if you have only a de minimis amount of property to report. North Carolina, for example, allows holders of unclaimed property to defer reporting and remitting until such time as the holder has more than $250 to report in any given year.
Most states also have reciprocity agreements with other states, whereby you may report fewer than 10 (number may vary by jurisdiction) properties to another state and they will transfer the properties as appropriate. However, California specifically does not participate in any reciprocity agreements. Further, some states argue that interest continues to accrue on late reported properties until such time as it receives the property from the other state. With these considerations in mind, it is generally not recommended for most large corporations to rely on the reciprocity agreements; these agreements are best utilized by small to mid-size companies with a regional footprint and the occasional property reportable to outside states.
If you expect that your company will not file future reports in a jurisdiction, it is generally recommended that you notify the state at the time of filing. Initial filings often trigger requirements to continue filing, even if there is no additional property to report. Not all states require "negative" or "zero" reports, but many states do require such filings or recommend that companies file to have a complete filing history. By notifying the state that you do not expect further reports, you may save yourself time and money in compliance efforts, responding to subsequent inquiries by states, and even defending an audit. (See: Audit Triggers)
Barganier can help all size companies maintain compliance with all the various states. Our years of experience mean that you do not have to learn each reporting jurisdiction's requirements for reporting and you can rest easy knowing that the company has a robust compliance process that can withstand even the strictest of audit scrutiny.
* Other U.S. reporting jurisdictions include: District of Columbia, Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands.