Pujun Bhatnagar · January 29th, 2024 · 4 min read
Escheatment, a process originating from medieval times, involves reverting property to the state when an owner passes away without legal heirs. Today, it applies when a property holder cannot locate the rightful owner.
Mastering Unclaimed Property and Sales Tax Compliance in a Shifting Legal LandscapeIn the complex world of financial management, unclaimed property often falls under the radar for companies primarily focused on profit maximization. This can lead to insufficient attention to crucial regulatory and customer protection obligations, including compliance with sales tax regulations and unclaimed property laws.
Understanding the Basics: Escheatment and Sales Tax ComplianceEscheatment, a process originating from medieval times, involves reverting property to the state when an owner passes away without legal heirs. Today, it applies when a property holder cannot locate the rightful owner. Notably, the procedures following escheatment differ significantly from those of sales tax collection and remittance. Once remitted, the state becomes the custodian of unclaimed property, with an ongoing obligation to the original owner.
Tracing the Path to 'Unclaimed'Unclaimed property encompasses a range of assets, from dormant bank accounts and investment holdings to uncashed paychecks and overpayments in various sectors. Businesses must navigate the complexities of sales tax exemptions, online sales tax, and sales tax filing requirements alongside managing these unclaimed assets.
Setting Dormancy PeriodsEach unclaimed property has a designated dormancy period after which it becomes escheatable. This period varies, reflecting the diversity in types of assets – from payroll checks to long-inactive savings accounts. Businesses must stay informed about dormancy period changes, a challenge highlighted in recent reports, including a comprehensive December 2020 Sovos analysis. This is crucial for maintaining sales tax compliance and effectively managing sales tax liabilities.
Navigating Due DiligenceAfter determining the dormancy period, companies must conduct thorough due diligence, a vital step in both unclaimed property and sales tax compliance processes. This involves attempts to contact the property's owner before reporting and remitting to the state, paralleling the meticulousness required in sales tax reporting and remittance.
Legal Challenges and Jurisdiction in Unclaimed Property and Sales TaxFor nearly six decades, companies have navigated unclaimed property and sales tax compliance using established legal frameworks. However, recent legal disputes and upcoming Supreme Court cases, particularly involving states like Delaware, spotlight the evolving landscape of unclaimed property management and its intersections with sales tax regulations.