New Jersey auto dealerships may not be fully aware that holders of uncashed checks and other unclaimed or abandoned property must file annual reports and escheat the property to the State Treasurer.
The State acts as a custodian of these funds until the rightful owner(s) can be located, verified, and the assets returned. New Jersey has recently started selecting auto dealerships for compliance audits. The audits conducted by the State can take years to complete and penalties are potentially substantial. The look-back period for an audit is ten years but, if no reports were filed, there is no limit to the look-back period. The unclaimed property statutes allow the State to impose assessments based on estimates or statistical methods.
It is imperative that owners and management of New Jersey auto dealerships become informed about the statutory obligations applicable to “holders” of unclaimed property. Auto dealers should work with their tax professionals to develop policies and procedures that ensure compliance going forward. For dealers that have not complied with unclaimed property requirements in the past, your tax professional can provide guidance for participating in the Voluntary Compliance Program (VCP). The VCP is an alternative to a potentially more arduous and costly full compliance audit. Benefits of the VCP include removal of all late penalties if the business successfully completes the program. In addition, simple interest is assessed on the total liability to the state under the VCP, while compound interest is applied to liabilities resulting from an audit.
What are the Penalties for Noncompliance?
- Penalty for failure to render a report or perform other duties is imposed at the rate of $200/day up to a maximum of $100,000.
- Interest on failure to remit or deliver property on time is imposed at a rate of 10% above the 52-week TBill rate computed from the date property should have been paid or delivered.
- Penalty for willful failure to report or deliver property on time is imposed at the rate of $1,000/day up to a maximum of $250,000 plus 25% of the value of any property that should have been paid or delivered.
Who is Responsible for Compliance?
New Jersey businesses and other “holders” are subject to laws requiring them to report and remit unclaimed property to the State Treasurer. Out-of-state businesses may also to be subject to NJ rules if the apparent owner of unclaimed property has a last known address in the State of New Jersey.
What Actions are Required by a “Holder” of Abandoned Property?
- Notification to the apparent owner of abandoned property. Property is treated as abandoned if it has remained unclaimed for a certain period that is statutorily defined by property type (generally three years for uncashed vendor checks and one year for uncashed payroll checks).The holder of abandoned property with a value of $50 or more should send a certified letter with return receipt requested to the apparent owner at the last known address. The letter should inform the owner that the holder is in possession of unclaimed property that will be turned over to the State Treasurer unless the owner claims it from the holder before a report in filed with the State.
This notification to apparent owners should be mailed out not more than 120 days nor less than 60 days before filing the unclaimed property report.
- File annual unclaimed property reports and remit property to the State Treasurer.
- Maintain records of unclaimed property. You are required to keep records for five years after reporting unclaimed property.
What Kinds of Property are Considered “Unclaimed Property?”
Common examples are uncashed checks, including paychecks, customer credit balances, unclaimed refunds, and unclaimed “we owes.” The statutes contain a comprehensive listing.
What are Filing and Remittance Requirements?
- File the annual unclaimed property report and remit unclaimed property to the State Treasurer if the apparent owner has a last known address in the State of New Jersey. If the apparent owner has a last known address in a state outside of New Jersey, file an unclaimed property report in that state.
- Unclaimed property report covers the 12 months ending on June 30th of each year. The due date is November 1.
Does New Jersey have a Voluntary Compliance Program (VCP)?
Businesses that are noncompliant have the option to participate in the VCP as an alternative to a full compliance audit. Benefits of the VCP include removal of late penalties, although interest charges still apply.
The reach-back period of the VCP is 10 years from the property type’s statutory abandonment period. However, if the business has previously received the general informational memorandum from the State regarding filing requirements, a 15-year reach-back period may apply. Also, if a business has received an audit notice from New Jersey, it is not eligible to participate in the VCP. The business participating in the VCP must agree to report and remit unclaimed property for the reach-back period and comply with unclaimed property filings for future years. If a business does not have records for the full reach-back period, the VCP allows the business to conduct a self-audit covering years in which records exist and then, based on the results of the self-audit, the liability for years with missing records may be estimated.
Author: Louis Young | [email protected] and Rochelle Kimmins | [email protected]