Unclaimed Property:
A Liability or a Jackpot?

If a business holds money or intangible property that belongs to another and the property cannot be returned within a certain period of time, it becomes unclaimed property and must be remitted to the Washington State Department of Revenue for “custodial care.” The State uses various techniques to locate the rightful owners but inevitably receives a windfall of property that is likely never to be claimed. Even though unclaimed property is not a tax, the majority of this money goes into the State’s General Fund for spending and only $750,000 is held in trust for payouts on claims made by owners.

GENERAL TYPES OF UNCLAIMED PROPERTY

Examples of unclaimed property that may be held by businesses include uncashed employee paychecks, vendor account credit balances, utility deposits, stocks, and items left in safe deposit boxes. Unclaimed property generally does not include unused tickets for specific events, uncashed checks for donations, and unused coupons or discounts. Gift certificates were exempted from becoming unclaimed property in 2004.

HOLDING PERIOD

The holding period is the amount of time that must elapse before the property becomes unclaimed. In Washington State the holding period ranges from 1 year for payroll checks to 15 years for travelers’ checks. For most types of property (i.e., credit balances, savings accounts, and money orders) the holding period is now 3 years.

REPORTING UNCLAIMED PROPERTY

Unclaimed property reports and payments are due to the Department of Revenue each November 1. There is no minimum threshold for reporting but detailed information about the owner of the property need not be reported if the per item amount is less than $50. In order to decrease the amount of unclaimed property you are required to remit, consider taking pre-emptive actions such as: providing automatic payroll check deposits directly into your employees’ bank accounts, and investigating uncashed checks and open credits to determine if these are truly unclaimed property or merely accounting errors. Often, something that appears to be unclaimed property is just an accounting error that needs to be corrected so implement a system to investigate these and save time and money in the long run.

VOLUNTARY DISCLOSURE

Many states, including Washington, are getting more aggressive in their enforcement of unclaimed property reporting in an effort to generate more “revenue.” If your company is holding substantial amounts of unclaimed property, or has reclassified it as Other Income in the past, you may consider voluntarily registering to report your back liability. Companies that voluntarily disclose their prior liabilities may be given a waiver of penalties and interest. If your company is selected for an unclaimed property audit, the Department of Revenue offers, and even encourages, companies to perform a self audit. If you elect to self audit and determine there is unclaimed property that needs to be reported, in certain circumstances the Department may waive the penalties and interest.

JACKPOT!

Finally, ensure your company does not have any unclaimed property of its own that could be claimed. The Department of Revenue’s website provides a useful database where you can look up names of owners and obtain forms to file refund claims with the Department. Your boss may be very appreciative if you point out some unclaimed property due to the company or to them individually! The website address is www.dor.wa.gov.

If you have any questions, please contact Darcy Kooiker, Director of State and Local Tax Services at dkooiker@bpcpa.com or 425.454.7990.