Tuesday, February 2, 2016

Florida Senate Bill 970 -- Will Florida Expand the Use of Estimation?


One of the most controversial issues surrounding unclaimed property audits is estimation -- the use by auditors of statistical sampling and extrapolation to calculate a holder's historical unclaimed property liability in years that there are no researchable records available.  Holders and states dispute, among other things, when such estimation is appropriate, how it should be performed, and whether estimation can be used at all when not specifically authorized by statute.  Estimation has been a commonly contested issue arising in litigation between holders and states, and is one of the issues hotly contested in connection with the proposed revision of the Uniform Unclaimed Property Act.

While states, auditors, holders, and holder advocates dispute a number of issues with regard to estimation, until now they all agreed on at least one thing:  that unclaimed property liabilities for "estimated" years (where actual records were not reviewed) were all payable to the holder's state of incorporation.  As you may recall from our post about unclaimed property jurisdictional rules, unclaimed property generally gets turned over to the state where the owner's last-known address is located.  Where the holder has no owner-address information, unclaimed property gets reported to the holder's state of incorporation.  Using that same logic, estimated liabilities (which, being a simple calculated liability are by definition not associated with owner names) have historically been escheatable only to the holder's state of incorporation.  

Recently introduced legislation in Florida seeks to change all that.  Florida House Bill 783 / Senate Bill 970 proposes to amend the audit provisions of the Florida Unclaimed Property Act to provide:

If the records of the holder that are available for the periods subject to this chapter are insufficient to permit the preparation of a report of the unclaimed property due and owing by a holder, or if the holder fails to provide records after being requested to do so, the amount due to the department may be reasonably estimated, regardless of whether the holder is incorporated, formed, or organized in this state.
 In other words, the proposed legislation not only expressly authorizes Florida's auditors to estimate the liabilities of holders incorporated in states other than Florida, but it also provides the auditors with the authority to estimate "the amount due to the department" (i.e., Florida).  That runs contrary to most auditors' current practices, and is likely to cause significant disputes among the states, as most states clearly instruct that all estimated property gets reported and delivered to the holder's state of incorporation.  While holders may be concerned by this development, it is really the private auditing firms that run the risk of being forced to try to reconcile multiple state demands for the same property. 

The legislation is currently in committee in both the Florida House and Senate.  

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