Unclaimed Property as State Revenue

According to an article in today's Chicago Sun Times, Illinois is holding over $1.4 billion in unclaimed property.  (That's right.  Billion.  With a B.)  Of course, with today's state budget deficits, that doesn't mean that Illinois has $1.4B sitting in the bank.  Usually, a specific amount is held aside to honor claims, while the rest is used as revenue.  Thus, as state budgets get more and more lean, there is a greater reliance on unclaimed property collection to make up the difference.  In Delaware, for example, unclaimed funds represents the third biggest contributor state revenue, after franchise and personal income taxes.  Similarly, in Michigan, the governor announced a proposed budget that seeks to close a $1.5 billion gap by, among other things, changing unclaimed property laws.

What this means for holders is that stringent enforcement of state unclaimed property laws is not going away.  If anything, enforcement will likely become more strict, as states seek to raise additional revenue without raising taxes.  Aggressive enforcement of unclaimed property laws allows the state to not only take custody of funds to use as general revenue, but to collect additional amounts in interest and penalties for noncompliance.  Accordingly, holders who take the view that unclaimed property compliance is a luxury in today's economy might want to consider that the state has an economic interest in enforcing these laws.

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