Delaware Escheat Statute
Not only is Delaware a hot state this summer because of the weather, but it is a hot state because of their unclaimed property laws. On February 2, 2012, the Delaware Court of Chancery released its decision regarding an important lawsuit to the unclaimed property holder community, especially retailers and manufacturers incorporated in the state of Delaware. During 2010, Staples sued the State of Delaware in response to a demand for payment made by the State under the Delaware “Escheat Statute” (see Staples vs. Cook). Delaware countersued Staples. Staples reasoned that unclaimed rebates are not escheatable unclaimed property. Following many confusing briefs filed by Staples, the Escheat Statute clearly states that “property means personal property of every kind or description, tangible or intangible (including), but not by way of limitation, (i) money; (ii) bills of exchange, (iv) credits and (xiii) all other liquidated choses in action of whatsoever kind or character”.
Confused? It is evident how large or small companies may be unclear if what they possess on their books translate to unclaimed property, especially in a courtroom. Staples was under the impression that the "rebates" they offered were issued as “volume discount credits to business customers”, when in fact the rebates were defined as “property” according to Delaware’s Escheatment Statute. This therefore, makes the rebates subject to escheatment after a “five-year dormancy period”.
Just recently the Delaware House and Senate passed an “incentive” program for companies to report and remit their past due unclaimed property as part of a Voluntary Compliance Agreement. Read more below.
With so many changes in tax and unclaimed property laws, it is challenging for companies to keep-track of what constitutes “unclaimed property”. To have a better understanding of unclaimed property and decrease a potential audit risk, it is best to consult with an unclaimed property specialist.
After all, your best weapon against an audit is knowledge.