0607_CalProd_Beautiful (MUST USE)

Why States Care

In reality, state governments view unclaimed property as a major source of new revenue, enabling states to raise revenue without raising taxes. Consequently, what was once a seldom-enforced area of the law has spawned aggressive audits of catalog companies and electronic merchants.

And as the nation’s economy slides into recession and state coffers run dry, strict enforcement of escheat laws will be an increasingly attractive way for states to deal with their burgeoning budget deficits.

Moreover, to haul in as much money as possible, states hire private audit firms on a commission basis to identify and audit
target companies. Typically receiving 10 percent to 15 percent of the amounts they collect, these bounty hunters frequently conduct audits on behalf of several states at the same time. The bill to direct marketers can be enormous, especially when interest and penalties are piled on.

How to Comply

Compliance with escheat laws isn’t easy. State laws vary considerably regarding the types of property that must be reported and the time period before retailers must turn unclaimed property over to state treasuries. The period of time that must pass before property is considered abandoned (the so-called “dormancy period”) ranges from one year to 10 years, depending on the state and type of property.

Pay attention to how state laws deal with issues such as gift card expiration dates. Many marketers mistakenly believe they can retain the unredeemed value of gift cards, sometimes referred to as “slippage” or “breakage.”

While some states exempt gift cards from their unclaimed property laws, these exemptions often aren’t available if expiration dates or service charges are imposed by merchants. Careful planning is required to minimize your exposure to unclaimed property liability with these programs.

Compliance is further complicated because it’s sometimes difficult to determine which state is entitled to the unclaimed property. It’s not uncommon for states to compete with each other for these unclaimed funds.