The State Revenue Source That People Aren’t Talking About
Last year, around this time, my father received a notice in the mail from a third-party notification service that offered to recover “unclaimed property” owed to his dissolved business for a fee. Unclaimed property refers to financial accounts, safe-deposit boxes, funds, or property that is turned over to the government by an organization (financial institutions in many cases) when no activity or interest is generated by the owner, typically after three or more years of dormancy. Change of address is one of the most commonly cited causes for unclaimed property to occur. When these accounts or funds become dormant, they are required by law to be turned over to the state. In 1954, the Uniform Law Commission promulgated the Uniform Disposition of Unclaimed Property Act of 1954, which prompted states to put systems in place to hold organizations accountable for the lucrative silence surrounding unclaimed property. It’s been amended twice, and only a handful of states have adopted the most recent 1995 version.
Being the not-so-tech-savvy adult that my dad is, he asked me about it, and I looked into it (i.e Googled what is unclaimed property, because, honestly, it sounded like a scam). I had him call the State of Michigan to inquire a bit more about the process, and they informed him that he was owed ~$3,000. I told him he had to file a claim, so we did it together — attached a copy of his ID, SSN, articles of incorporation for the business, and essentially everything else needed to prove that, in fact, these unclaimed funds belonged to him. About 12 weeks later, he got a response stating that he submitted insufficient information to prove that he owned the unclaimed funds.
In the United States alone, there is over $58B in unclaimed property. That’s right, the amount of unclaimed assets is approximately the size of Luxembourg’s GDP. According to the National Association of Unclaimed Property Administrators (NAUPA), in fiscal year 2015, of the $7.63B unclaimed property reported, only $3.235B was returned to rightful owners.
Unclaimed property is one of the fastest growing sources for state revenue, and many believe that most unclaimed property is not reported. According to the Keane Organization, most states estimate only 10–35% of companies follow unclaimed property laws completely, which means all the statistics above are only a fraction of the UCP (unclaimed property) that’s actually out there. Almost every business entity is required to annually report unclaimed property, and, if they don’t, penalties assessed by state auditors range from $100 per day in Wisconsin to $500 per day in Illinois. In Delaware, unclaimed property is the third largest revenue source for the state government due in part to the large volume of business entities that incorporate in Delaware.
According to Daniel Fisher of Forbes, “As in many other states, California has tightened the period for establishing “unclaimed assets”, from 15 years when the Unclaimed Property Law was first passed in 1959 to seven years in 1976, five in 1988 and three years since 1990. Along the way, it loosened its notice procedure, eliminating notice entirely for items worth less than $50 and running generic 3"X5" newspaper ads directing readers to a state website to look up property they suspect might be theirs. Seizures rose from $2.7 billion in 2001 to $7.6 billion in FY 2015.” Unclaimed property is the fifth-largest revenue source for California’s general fund, larger than the alcoholic beverage tax, bringing in about $400 million a year. These statistics illustrate the inherent conflict of interest between the state, businesses, and its citizens when it comes to unclaimed property, and how the lucrative silence surrounding UCP has shifted from business entities, prior to the enactment of unclaimed property laws, to the current lucrative silence that allows UCP to become a vital source of revenue for state governments.
So, how are you impacted by unclaimed property?
If you’re a business entity or shareholder, you should care because it could affect next year’s earnings, for better or for worse.
If you are a US citizen, you should care because your local and state government probably hasn’t taken the initiative to submit claims, and, chances are, you could be owed money by your state’s government as an individual or as an heir to a relative’s unclaimed property. Find your state database via Google, your state treasurer’s website, or simply utilize missingmoney.com, a product of NAUPA, to concurrently search most states.
If you’re a government entity, it’s obvious why you should care about unclaimed property.
It’s a bit contradictory that not only do state governments owe local governments money, but also that state governments, with unparalleled access to data, can’t locate, notify, and return unclaimed property to some of the most notable members of society (Steve Jobs, Barack Obama, Elvis Presley), prominent businesses (JP Morgan Chase & Co, Goldman Sachs, Lehman Brothers), foreign nations (Consulate of Kenya, Consulate of Canada, Consulate of China), and notable governmental agencies (IRS, SEC, USPS). For example, Enron, even after bankruptcy, still has $158,273.34 in unclaimed property listed in California’s unclaimed property database and $117,226.97 in Texas’ unclaimed property database.
The mere fact that the Ninth Circuit Court of Appeals ruled in TAYLOR v. YEE that utilizing additional state databases to locate and notify UCP owners “exceeds the minimum due process requirements” is troubling. The plaintiff’s attorney puts it very bluntly in an article by David G. Savage of the LA Times, “When they want to collect taxes or fines, they check the online databases and the DMV records, but not when they want to restore your property. They just send a letter to the same stale address.”
In many cases, the absorption of unclaimed property by state governments is a silent, idle, and unknown tax on citizens, businesses, and government entities to fuel state budgets. Although persons and entities can claim unclaimed property into perpetuity, states are claiming a percentage of unclaimed property into their general funds, which could theoretically be claimed back by its owner or heir. According to a report by the Legislative Analyst’s Office of the State of California, each year, in California, all but $50,000 of the annual ~$400M in unclaimed property is transferred to the General Fund. Additionally, the report estimates that the total potential liability for unclaimed property exceeds $7B. This could be problematic in the future if entities and persons were to claim more than predicted.
In an effort to research the topic further, I submitted FOIA requests to 30 states and the District of Columbia via email and state FOIA portals. I did this by email because the last time I called an UCP office, I was on hold for more than an hour before I got through to a representative. Specifically, I asked for an Excel list (.xlsx) of all unclaimed properties over $1000 with names, specific amounts and last reported addresses, because most states do not list the precise amount that an entity is owed in their unclaimed property databases online.
However, there are three states — California, Hawaii, and Texas that list the precise amount owed in their online databases. Nonetheless, after submitting the FOIA requests, 24 states said I couldn’t have a comprehensive list with specific amounts of UCP with the contingency that I could appeal it through judicial review and 6 states said I could request the name, address, and property amount for a fee. Only 1 state and the District of Columbia granted my FOIA request without a fee. States that denied the request to view the specific amount owed for each unclaimed property denied it on grounds of owner confidentiality, that was typically cited in state statutes. Maine, however, said I could not request the data because I wasn’t a private investigator.
Most states do not release unclaimed property lists with specific amounts. However, some states, such as Wyoming, release said lists for a $1000 fee.
All states were very courteous and responded promptly. However, one response from Tennessee was particularly interesting. The premise for the denial of my FOIA request was that, because I wasn’t a citizen of Tennessee, I could not request data regarding unclaimed property in Tennessee. This answer was a bit paradoxical because, as a non-citizen of Tennessee, I can search their UCP records on their online database, but not as a comprehensive list.
In short, most states do not want to release detailed UCP data. It’s against individual state’s best interest, for what they argue is owner confidentiality, but, it could also potentially lead to lost revenue for state general funds if more private organizations helped restore high value entries or bulk low value entries. My father’s experience submitting a claim for UCP exemplifies the exact opposite of what the system was built to do, restore rightful property to rightful owners.
Hopefully, Americans can collectively figure out how to remove this silent and idle tax on the American public, but until then, states will continue to capitalize on an inefficient bureaucratic system.