Press Room: Tax Release
Going Retro: Illinois Enacts the Revised Uniform Unclaimed Property Act With Retroactive Application
On July 6, 2017, Illinois passed Senate Bill 09 (S.B. 09), overriding a gubernatorial veto and establishing a budget in Illinois for the first time in three years. Among the various provisions, S.B. 09 enacted the Revised Uniform Unclaimed Property Act (RUUPA), effective January 1, 2018, which the Illinois State Treasurer expects to raise $60 - $80 million in annual state revenue. Notable changes to Illinois’ unclaimed property law related to the reporting requirements for holders of gift cards, virtual currency, and business-to-business property.
Prior State of Unclaimed Property Law in Illinois
Unclaimed property laws govern the process by which businesses must report items of property in their possession that have gone unclaimed by their rightful owners. In situations where a business cannot locate the rightful owner of an item of property the state requires that the business remit that property to the state after a prescribed period of time. The state will then hold the property for the owner to claim.
RUUPA removed Illinois’ business-to-business (B2B) exemption. Under the new law, property due or owed between businesses resulting from a transaction occurring in the normal and ordinary course of business, and any earnings thereon, are now subject to unclaimed property reporting obligations. In addition, the period during which that property and earnings must remain unclaimed, before being presumed abandoned, has decreased from five years to three years.
Gift Cards vs. Stored Value Cards
RUUPA defines property to specifically exempt gift cards, thereby making gift cards not subject to escheatment. However, Illinois did not amend the definition of stored-value cards, which are subject to escheatment, to no longer include gift cards. This appears to be an oversight as the legislation was intended to exempt gift cards, yet the conflict between the two provisions makes it uncertain whether gift cards are escheatable. On November 8, 2017, the Illinois General Assembly passed an amendment to Senate Bill 868 (House Floor Amendment No. 2), which would remove that conflict and make it clear that gift cards are exempt under RUUPA. Governor Rauner has sixty days from the date the bill is presented to him, to approve or veto it.
RUUPA amends the definition of property to include virtual currency (i.e., Bitcoin, Litecoin, etc.), making such currencies subject to escheat. Illinois defines virtual currency as a digital representation of value used as a medium of exchange, unit of account, or store of value, which is not recognized by the United States as legal tender, but does not include gift cards.
Retroactivity of Reporting Requirements
In enacting RUUPA, Illinois included a transitional provision, which establishes the retroactive application of the reporting requirements of the newly minted law. The provision requires Illinois holders to report on their 2018 initial report two new categories of property that would have been presumed abandoned during the five-year period leading up to the January 1, 2018 effective date: (1) all items of property that were previously exempt (but now subject to escheat under Illinois’ RUUPA), meaning property from B2B transactions, and (2) all items of property that were not previously exempt, but are now subject to the shorter three-year dormancy period (i.e., property from non-B2B transactions). As such, the first report due under the new law should include any newly reportable property presumed abandoned from January 1, 2013 up through December 31, 2017 (e.g., a five-year catch-up period). If the typical three-year dormancy period applies, a holder would therefore have to report property from B2B transactions occurring as early as January 1, 2010, and from non-B2B transactions occurring as early as January 1, 2012.
Additionally, under the new law, holders are required to retain records for ten years after the date a report was filed or due to be filed, instead of five years after the property was reportable. Holders ultimately are required to maintain records for ten years (plus the dormancy period) to ensure all transaction periods are researchable in the event of an audit. The deadlines for the first reports due under the new law will be either May 1 or November 1, 2018, depending on the type of holder.
Effective January 1, 2018, the requirements of Illinois’ unclaimed property law are likely to become much more onerous for most businesses, due to the repeal of the B2B exemption and the greater record-retention period. Many questions are likely to arise in the implementation of the transitional provision, and the options available to businesses that understandably did not retain records of B2B transactions that resulted in property that is only now becoming reportable. Forms available on the Illinois State Treasurer’s website have yet to be updated, and regulations have not yet been issued under the new law. Fortunately, Illinois is still operating a Voluntary Disclosure Agreement program for eligible unclaimed property holders.
Please consult with your Andersen Tax SALT team advisor for any questions regarding this legislation.