Here is a breakdown of the essential questions surrounding unclaimed property reporting:
1. Who Is Required To Report Unclaimed Property?
The requirement to report and remit unclaimed property applies broadly across various organizations, often referred to as “Holders.” This includes virtually all entities that hold assets for others.
- Corporations: Retail, Manufacturing, Service/Hospitality, and all others.
- Banks & Financial Institutions: All types of banks, credit unions, and other financial services.
- Insurance Industry: Life insurance companies and Non-Life insurance carriers.
- Others: Utilities, Government Jurisdictions, Colleges/Universities, Hospitals, and non-profit organizations.
2. What Property Is Required To Be Reported?
While there are over 100 different types of unclaimed property depending on the industry, the core obligation is to report any financial obligation that has gone uncashed, unclaimed, or dormant for a defined period (the “dormancy period”).
Common Property Types:
- Vendor and Accounts Payable Checks: Uncashed checks issued to suppliers or vendors.
- Wages and Payroll Checks: Unclaimed paychecks. (Note: These often have a shorter dormancy period).
- Accounts Receivable Credit Balances/Refunds: Money owed to customers.
- Any Check or Obligation: This includes dividends, stock/security proceeds, customer overpayments, money orders, and safe deposit box contents.
3. When Are Unclaimed Property Reports Due? (Dormancy & Due Dates)
The reporting timeline is based on two key elements: the property’s dormancy period and the state’s annual due date.
A. Dormancy Period (When property becomes “unclaimed”)
This period is normally triggered after the property becomes dormant (e.g., a check issue date, account open date, or date of last activity).
- Most Property Types: Typically three or five years after the property has been unclaimed or dormant, depending on the state and property type.
- Payroll Checks: Often have a shorter dormancy period, usually one year in most states.
B. Due Diligence/Search Letter Mailing
Before reporting, Holders must send a final notice to the owner. This must be done:
- Normally 60 to 90 – 120 days prior to the report due date.
C. Annual Report Due Dates (When the report is filed)
Reports are generally filed annually, but the specific date varies by industry:
- Corporations, Banks, & Financial Institutions: Normally due October 31 / November 1.
- Insurance Industry: Normally due April 30 / May 1.
- Note: About six states have report due dates in the spring/summer for non-insurance entities.
4. Where Are Reports Required to Be Submitted? (The Priority Rules)
The destination state for the property follows strict priority rules established by the U.S. Supreme Court:
- Primary Rule: Report to the State of the Owner/Payee’s Last Known Address as reflected in the company’s books and records.
- Secondary Rule (A.K.A. “The Tie Breaker”): If the owner’s address is unknown, foreign, or if state law exempts it, the property defaults to the Company/Holder’s State of Incorporation (or state of domicile).
5. Why Is Unclaimed Property Required To Be Reported? (Compliance & Penalties)
The legal foundation for reporting is the 1965 U.S. Supreme Court decision, Texas v. New Jersey, which established that intangible property must be reported to the state of the owner’s last known address.
Risk of Penalties
States actively assess significant fines and interest on past-due or unreported property to encourage compliance:
- Interest Penalties: Generally range from 4% to 25% of the property value.
- Failure to Report/Comply: Civil fines and penalties may be assessed.
- Fraudulent Reporting: Penalties vary widely but can include a daily fine (e.g., $100 – $200 per day up to $10,000 maximum), a significant flat fine (e.g., $1,000 – $25,000), plus an additional percentage (e.g., 25%) of the property value. Some state laws even include Class B Misdemeanors.
6. How To Report Unclaimed Property? (Reporting Methods)
Holders have several options for managing their reporting obligations:
Reporting Method
- Do it Yourself: Utilize commercial software solutions or manually use state websites.
- Co-Source/Outsource: Engage a service provider for partial or full reporting assistance.
Submission Format
- Electronic Format: Reports are generally required to be submitted in the standardized NAUPA II Electronic Format via state websites.
- Paper/CD: Paper reports are only accepted if the property value is below a certain state threshold. CD submissions are rarely accepted today.
Remittance/Payment
Checks: Used for small remittances.
Online Payments: EFT (Electronic Funds Transfer) or Wire Transfers are typically required for payments over a state-defined threshold.
For further information or questions, please contact PEACC .com at 410.303.5510 or email info@peacc.com
