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Illinois revises the state's unclaimed property statute

March 9, 2018
By Zachary Robbins, J.D.; Christine Smith, CPA; AND Margaret Young, CPA, Crowe Horwath LLP
Throughout the U.S., unclaimed property laws deal with intangible property that has not been used or claimed within a certain period of time (the dormancy period), after which the property holder must remit or escheat the property’s value to the state for safekeeping.
The state of Illinois recently made significant revisions to its unclaimed property statute with Senate Bill 9 (SB 9), which will affect auto dealers’ annual reports due May 1, 2018.
Prior Illinois law included business-friendly provisions such as an expansive exemption for most types of potential unclaimed property transactions between businesses. Illinois also provided relatively generous dormancy periods to give businesses ample opportunity to determine the true owner of unclaimed property.
The revised law, which generally became effective Jan. 1, 2018, eliminates these provisions on a retroactive basis. For a holder’s annual report due May 1, holders must apply the new law retroactively for a period of five years.
Elimination of the business-to-business exemption
Prior law did not require businesses to escheat transactions owed from one business association to another. The new law repeals this exemption retroactively, so holders that relied upon this exemption in the past should revisit their prior analyses.
Reduced dormancy periods
Unclaimed property typically takes the form of intangible property, such as accounts payable checks, accounts receivable credits, payroll checks, and unredeemed gift certificates. Each property type has a unique dormancy period.
Illinois’ prior unclaimed property law required holders to report most property after a five-year dormancy period. SB 9 shortens the period from five years to three years for many property types. The change will require holders to file a "catch-up" report on May 1, to incorporate the change. Unclaimed wages will retain a one-year dormancy period.
Additional contingent fee-based audits
Many states currently conduct unclaimed property audits through third-party audit firms, which often are paid contingent fees based on the amount of unclaimed property collected. Prior Illinois law prohibited the state from contracting with a third-party auditor to examine holders within Illinois on a contingent-fee basis. SB 9 allows the state administrator to contract with contingent-fee auditors.
Auto industry property
In the automobile industry, a "we owe" is a credit due to a customer who has paid for a good or service that is distinguishable from the price of the vehicle but is not deliverable at the time of purchase. It may be negotiated separately or as part of the general purchase of an automobile. Generally, Illinois takes the position that amounts paid on a "we owe," less restocking fees or the like, are escheatable to the state if unclaimed by the customer after three years as an unapplied customer credit balance.
Automobile dealers and holders of potentially escheatable property in Illinois should understand the intricacies of unclaimed property laws and enact policies and procedures to help them comply and mitigate risk. A holder advocate can offer advice regarding best practices and risk mitigation.