CALIFORNIA ASSEMBLY BILL (AB) 46
Assembly Bill 466 authorizes the Franchise Tax Board (“FTB”) to share certain information with the State Controller’s Office related to unclaimed property. Beginning tax year 2021, the FTB will include additional questions for taxpayers to answer on their business entity tax return.
These questions include:
Whether the business entity previously filed an unclaimed property Holder Remit Report with the state’s Controller’s Office.
If the answer to the previous question is “yes” – then the taxpayer will be asked when its last report was filed, and the amount of unclaimed property remitted.
The FTB will add these questions to Forms 100, 100S, 100W, 565 and 568.
Unclaimed Property –Background
Unclaimed property refers to abandoned property or accounts with financial institutions or companies where there has been no activity generated with the property for a designated amount of time. After a designated period of time (also referred to as a dormancy period) with no activity or contact, the property is considered to be abandoned therefore classified as unclaimed. While some taxpayers mistakenly believe such property reverts back to their company, by law, the unclaimed property must be turned over to the state. California unclaimed property Holder’s Reports are due before November 1st annually.
California’s Unclaimed Property Law requires businesses to review their book and records annually and report any property to the state when there has been no activity for a period of time (dormancy period). The dormancy period is generally three years for most properties and one year for payroll. The most common types of unclaimed property include uncashed payroll checks and uncashed vendor checks.
California’s unclaimed property process is a two-step process (holder’s report and remittance report). The holder’s report contains the reportable unclaimed property that is within the dormancy period. This is the first step in California’s reporting process. The following step (annually – every June) is the remittance report (where the funds get remitted to the State Controller’s Office after all the due diligence steps have been taken).
Reporting software must follow the guidelines set forth by the National Association of Unclaimed Property Administrators. The final format of the encrypted file is then provided to the State Controller’s Office for processing.
Takeaway
The unclaimed property review and reporting process is one that is frequently overlooked by many businesses. It is a common misconception that the only companies that have an unclaimed property issue are those companies that issue items like credit cards or gift cards (that go unused). In practice, any company that has common items like payroll checks and vendor checks that go uncashed has an unclaimed property issue, and has an obligation remit such funds to the state of California, once a specific dormancy period is met. AB 466 is a further step by California’s Controller’s office to identify existing unclaimed property, putting additional taxpayers at risk for penalties for failure remit funds to the state.
Questions or Comments?
Please contact our Specialty Tax Group for additional guidance on how these changes may impact your business. SingerLewak LLP 2021.
Please contact: [email protected]
Specialty Tax Lead Partner: Javier Ramirez
Director: Peter Seidel
Supervising Senior: Mona Shekarchi