May 28, 2015

Most organizations do not realize that November 1st is a potential filing deadline in Washington. But, if your organization has an old employee paycheck sitting in a drawer, paid a check to a vendor that was never cashed, or has any other money or intangible property that is owed to an individual or business, you are likely the holder of unclaimed property.

Organizations are often unaware that they even have reporting responsibilities related to such property. There are two primary steps in evaluating whether your organization has unclaimed property to report. The first step is identifying what unclaimed property your organization holds. The second step is understanding when (and to what jurisdiction) that unclaimed property is required to be reported.

All states have their own set of unclaimed property laws. There are some differences between states, but for purposes of this article, this focus is on Washington’s unclaimed property laws. The State of Washington does not make any distinction between a for-profit business and a not-for-profit organization when it comes to unclaimed property reporting responsibilities. If your organization is based outside of Washington or has significant activities in other jurisdictions, you may wish to review the unclaimed property reporting requirements in those locations as well.

Unclaimed property is generally reportable to the state of the last known address of the owner. If the last known address of the owner (as shown in the holder’s records) is in Washington, then custody of the unclaimed property goes to Washington. When the address of the owner is unknown, the reporting location is where the transaction occurred out of which the property arose. For example, if your organization issued one or more payroll checks to an employee that were never cashed, that unpaid amount would be reportable to the state where the employee currently resides (if known); otherwise, it would be reportable to the state where the employee resided at the end of their employment with the organization. Other common types of unclaimed property often held by not-for-profit organizations include uncashed expense/vendor checks and unredeemed gift certificates.

Each type of intangible property has a specific period of time that must elapse before the state presumes the property to be abandoned. Uncashed expense/vendor checks are presumed abandoned three years after they became payable or distributable. Wages and payroll are presumed abandoned if they remain unclaimed one year after issuance. This “dormancy” period can range from 1 to 15 years depending on the type of property. If the unclaimed amount exceeds $75 or the property at issue is stock or safe deposit box contents, Washington requires the holder to send a letter to the owner’s last known valid address to give them the opportunity to claim the property directly from the holder before it is reported to the state.

Once property is presumed abandoned, the property is subject to custody of Washington and should be turned over to the state by filing an unclaimed property return. Returns must be filed annually by November 1st to report any property that reached the end of its dormancy period between July 1st and June 30th of the preceding year. Unclaimed property returns must be filed electronically through the Washington Department of Revenue website unless there are 10 items or fewer to report for the year. Failure to pay or deliver unclaimed property to the state when it becomes reportable can result in interest being imposed. Penalties may also apply if the Department of Revenue determines a person or business willfully failed to render any report, or to pay or deliver reportable property to the state.

The Washington Department of Revenue conducts random unclaimed property audits of businesses and organizations, just as it does for the excise taxes it administers. On audit, an organization is typically required to report all previously unreported property that became reportable in the prior six years. Obviously, this can lead to significant liability if the organization has accumulated significant unclaimed property holdings over that period. So before recognizing those ancient refundable deposits, uncashed checks or unredeemed gift cards as revenue, you should consider your organization’s unclaimed property reporting requirements to the state!

Contact Clark Nuber or your tax provider for assistance in understanding how the unclaimed property laws apply to your specific facts or to discuss any other matters relating to state or local tax laws.

© Clark Nuber PS, 2015.  All Rights Reserved

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.