Unclaimed property: unraveling the business-to-business exemptions.

• Author: Walsh, Colin

Unclaimed property laws protect owners vulnerable to the loss of their property. For this reason, many states have specific reporting requirements for life insurance companies, financial institutions, and other entities that act as fiduciaries. The laws are based on the policy that these entities should not benefit financially from the vulnerability of the individuals they serve.

Some states take the position that businesses, unlike individuals, do not need the protections afforded by unclaimed property laws, and therefore business holders are exempt from reporting unclaimed property owned by other businesses (business-to-business, or B2B, exemptions). States with B2B exemptions have determined that businesses are capable of ensuring that their property interests are secured and that taxpayer dollars should not be spent to protect them. States with B2B exemptions choose not to interfere with business relationships and instead allow businesses to settle their contractual rights between each other.

While the concept of a B2B exemption to unclaimed property reporting seems simple on its face, the intricacies of state-specific laws greatly complicate the matter. B2B exemptions can vary considerably among states but generally fall within three broad categories: (1) complete exemption, (2) limited exemption, and (3) ongoing-business-relationship exemption. It is important for CPAs and other professionals who may deal with unclaimed property to understand the different exemptions.

The Three Types of B2B Exemptions

A complete B2B exemption is the most holder-friendly exemption. Consider, for instance, Ohio's B2B exemption, which establishes that unclaimed property does not include:

Any payment or credit received by a business association from a business association for tangible goods sold, or services performed, in the course of business, including, but not limited to, checks or memoranda, overpayments, unidentified remittances, nonrefunded overcharges, discounts, refunds, and rebates. [Ohio Rev. Code [section] 169.01(B)(2)(c)]

Ohio's B2B exemption is broad and all-encompassing. While holders are still required to attempt to return the property to the owners through due-diligence procedures, any unreturnable property becomes the property of the holder. Illinois, Kansas, Maryland, and Virginia have similar complete B2B exemptions (765 Ill. Comp. Stat. 1025/2a(b); Kan. Stat. [section] 58-3935(g); Md. Code, Com. Law [section] 17-101(m); and Va. Code...