Why Dealing with Unclaimed Property is Important


Have these situations ever happened to you?


  1. An employee quits without picking up their final paycheck. You call the last known phone number, but it’s been disconnected, and when you send the paycheck to the employee’s last known street address, it’s returned.
  2. One of your customers has a credit balance on their account and you can’t locate them to refund it.


These are examples of unclaimed property, and it’s tempting to say, “Well, I did everything I could!” But that’s not true. Business owners have a legal obligation to maintain accounting records for unclaimed property and – if the rightful owner can’t be located – to turn the unclaimed assets over to the appropriate state for disposition.


Examples of unclaimed property include abandoned property, annuities, insurance payments, security deposits, gift cards or certificates, and payroll checks – anything of value. Even if you’ve sold your business, you’re still responsible for any unclaimed property incurred until it’s been returned to the owner or remitted to the state (also known as “escheatment”).


State laws vary on the dormancy period, i.e., how long property has been unclaimed, but it’s typically at least a year. If you fail to make an annual report, states assess penalties and significant interest approaching 20% per year. This is an area where states are becoming increasingly aggressive in seeking revenue because there are so many businesses that ignore this important requirement. Therefore, audits by state taxing authorities are prevalent and can go back into your past records - even up to 10 years ago!


From time to time, states offer voluntary disclosure agreements that provide amnesty from interest and penalties . . . but only if you enter into one before you get audited.


Most states have a November 1 due date for unclaimed property reporting, and that’s just a few months away. So now is the time to gather those records and contact those lost owners. To find your state’s reporting requirements, click here.


And if you’d like some help with this reporting, our State and Local Tax (SALT) team is ready to help you. Contact Brandon Mills, our Mize SALT Manager, at bmills@mizecpas.co for more information. 

State By State News

Arkansas

 

For tax years 2024 and beyond, the highest individual income tax rate will be 3.9% and the highest corporate income tax rate will be 4.3%.

 

Connecticut


Net Operating Loss Deductions. New legislation that takes effect on or after January 1, 2025 extends the period for which corporations can carry forward a net operating loss (NOL) from 20 to 30 income years.


Combined Reporting. Also, certain combined groups meeting specified qualifications are allowed to deduct the amount necessary to offset the increase in the valuation allowance against NOLs and tax credits in Connecticut that resulted from the state’s shift to combined reporting.


Kansas


New Individual Tax Rates. Governor Laura Kelly signed omnibus tax legislation on June 20 that makes changes to individual tax rates. The state now has a two-tiered rate structure:

Married Filing Jointly

5.2% up to $46,000

$2,392 plus 5.58% of the excess over $46,000

All Other Taxpayers

5.2% up to $23,000

$1,196 plus 5.58% of the excess over $23,000

Social Security Exempt from State Taxable Income. One of the most notable features of the new bill is the exemption of Social Security income from state income tax calculations. Beginning with tax years after December 31, 2023, amounts received as Social Security benefits that are included in federal adjusted gross income (AGI) are to be subtracted for state tax purposes, removing the current $50,000 limit.


Credit for Household and Dependent Care Expenses. For tax years 2024 and thereafter, the credit for household and dependent care expenses is increased from 25% to 50% of the taxpayer’s federal income tax liability.


Recent Kansas Tax Changes May Affect Your Business. In late April 2024, Governor Laura Kelly signed Senate Bill 410 - a tax bill that includes retroactive provisions affecting both individual and corporate Kansas income taxpayers. Click here to view the highlights.


Missouri


Treatment of NOLs. The regulation governing the proper treatment of NOLs for purposes of Missouri individual income tax has been amended. State law does not allow an individual taxpayer to have a negative federal AGI for purposes of computing Missouri AGI. Therefore, an individual who has a negative federal adjusted gross income for a given tax year must compute Missouri AGI or Missouri nonresident AGI for that year as though it was $0. Any amount of NOL deduction used in determining federal taxable income but disallowed for Missouri income tax purposes may be carried forward for state tax purposes for no more than 20 years after the year of the initial loss.

For more about State and Local Tax visit MizeCPAs.com