0607_CalProd_Beautiful (MUST USE)

The U.S. Supreme Court tried to referee the battle among competing — did someone say greedy? — states more than 40 years ago, establishing the basic principles controlling which jurisdiction has priority over unclaimed property. In the case of Texas v. New Jersey, the Supreme Court declared that first priority goes to the state of the rightful owner’s (e.g., customer’s) last known address as evidenced by the holder’s business records.

If a merchant issued a rebate check to a customer in California, for example, the value of the uncashed check would need to be reported to California.

If the rightful owner’s address is unknown, however, then the property belongs to the state where the company holding the property is incorporated. This may be Delaware, a state in which many companies choose to incorporate due to its liberal corporation laws.

How to Escape

If your company’s not in compliance with escheat laws, most states have voluntary disclosure programs allowing merchants that haven’t made abandoned property reports to fully disclose amounts owed with a waiver of interest and penalties. These can be very substantial.

Voluntary disclosure agreements, however, are only available to companies that haven’t been audited or received a notice of audit. So if your business has unreported abandoned property, you’re at risk of being targeted for a state unclaimed property audit, and you should get advice from a professional who can help quantify the risk. If the situation warrants action, that professional can help you negotiate voluntary disclosure agreements before states start sending you audit notices. «

George S. Isaacson is senior partner with Brann & Isaacson. He represents multichannel merchants on tax matters and is tax counsel to the Direct Marketing Association (DMA). Reach him at gisaacson@brannlaw.com.