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Like California, Delaware is Eying Unclaimed Money

More states are considering the use of unclaimed money for the benefit of the state. The prolonged economic slump has forced a lot of state governments and agencies to rethink their operational and financial strategy. It is hardly surprising that the state of Delaware, like California, is fighting hard to continue the various development projects. Taking a cue from California, Delaware is trying to utilize a key source of revenue: state unclaimed money.

Not only Delaware, but other deficit-stricken states are also are taking a more calculated approach towards recovering unclaimed money, which can include stocks and bonds, uncashed checks, unclaimed dividends, wages, refunds, and utility deposits. Such property typically is declared abandoned when an owner forgets about it, moves without a forwarding address, or dies without informing heirs of the property.

Delaware is a unique state in that it is home to corporate headquarters for thousands of companies. As a result, the migration of employees continues all year round, which means a large volume of unclaimed property. Abandoned property has become a major source of revenue for the state of Delaware. It is the third-largest source of revenue, behind only personal income taxes and corporate franchise taxes, totaling half a billion dollars last year.

By law, states are required to return the unclaimed money or unclaimed property to the actual owners, but a large percentage of these unclaimed monies are still lying in the state treasury. According to reliable sources, Delaware has taken in more than $1.7 billion in abandoned property since 2007 but returned only $46 million, or less than 3 percent.

“States need money, but this is not supposed to be a revenue generator,” said Diane Green-Kelly, an attorney representing office supplier Staples Inc. in an escheat lawsuit against Delaware. “States are supposed to be reuniting property with its owners.”

Other states are also following in the footsteps of California and Texas:

  • Nevada has proposed borrowing against the state’s unclaimed property funds, which have been used for college scholarships.

  • Officials in North Carolina, which also uses escheat funds to help college students.

  • Delaware is moving very cautiously as far as utilizing the unclaimed funds is concerned. It has been facing resistance from some of the large corporations. Staples filed a lawsuit almost a decade after it said in a voluntary disclosure agreement that it owed about $137,000 in past due escheat payments.

    “As a state, we’re very fortunate to have this revenue source; it keeps taxes down for our citizens,” said Delaware finance Secretary Tom Cook. “But it’s a fine line to walk. We certainly don’t want to be seen or portrayed as being negative to business.” Cook also noted that only about 3,000 companies file annual abandoned property reports as required, a fraction of the companies incorporated in Delaware. Last year, for the first time, the amount collected from enforcement actions exceeded the amount taken in from regular collections.

    In addition to exempting inventory, the bill established an administrative appeals process allowing property holders to challenge assessments without having to sue.”We think it’s a great start,” said Joseph Crosby, senior policy director for the Council on State Taxation, a trade association that represents major corporations.

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