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Making the Case for a California VDA Program

Posted By Administration, Thursday, May 2, 2019

In March, California’s Legislative Analyst’s Office issued the report, Increasing Compliance with Unclaimed Property Laws, in which it recommends the state legislature consider providing one-time amnesty for holders seeking to come into compliance voluntarily. UPPO supports and has been working to encourage implementation of a voluntary disclosure agreement program in California.

 

The LAO report provides a compelling case for offering a VDA program, focusing on two areas:

  • Holder compliance with the state’s unclaimed property law is extremely low.
  • Increasing holder compliance solely by increasing audits is not viable. 

 

The California State Controller’s Office reported that 16,555 of the state’s estimated 900,000 businesses – approximately 2 percent – filed an unclaimed property report in 2016. According to the LAO report, the Controller’s Office cites lack of awareness and willful noncompliance as the main reasons for low compliance and speculates that high interest rates (12 percent per year) on unreported property may contribute to businesses choosing to remain noncompliant. 

 

Although revenue from unclaimed property in California has remained relatively flat for a few decades, the state significantly benefits from escheated property. 

 

“The value of property remitted to the state always exceeds the value of property reunited with owners,” according to the LAO report. “This difference provides a monetary benefit to the state… The amount that is not reunited with owners or used for unclaimed property administration provides a source of General Fund revenue.” 

 

Increased compliance with unclaimed property laws would benefit California citizens and the state itself. As more holders report, more owners would be reunited with what is rightfully theirs, and state revenue would increase because only a fraction of reported property is ever actually claimed.  

 

California’s governor has proposed increasing compliance by adding 11 positions and $1.6 million annually for unclaimed property audits and support activities. The LAO report points out that, while audits are an important deterrent, the scale of audits is too great to adequately address the lack of compliance. 

 

“With only a couple of dozen audits conducted each year, SCO cannot change the behavior of the hundreds of thousands of California businesses that are not complying with unclaimed property law,” the report says. “As such, this approach is unlikely to result in much additional compliance relative to current trends.”

 

The LAO offers two solutions:

  1. Amend the state’s tax law to require businesses to respond to a question about unclaimed property compliance as part of their annual tax filings. The question or series of questions would be purely informational, intended to increase awareness of unclaimed property responsibilities. 
  2. Provide a one-time amnesty for noncompliance holders. Such a program would waive the 12 percent per year interest penalty for holders coming into compliance. A two-year amnesty program in 2001-02 resulted in 4,927 holder reports valued at $196 million, representing about a quarter of the property escheated during those years. 

Approximately 30 U.S. jurisdictions currently offer holder VDAs. UPPO supports legislation to implement one in California. Such programs benefit citizens, holders and states alike. 

 

UPPO has supported past legislation that would establish a VDA program, has offered its assistance to help develop a mutually beneficial VDA program and recently registered as a lobbyist in the state of California to continue working on this issue. 

 

UPPO will continue to provide member updates on this issue as developments occur. Please see UPPO’s Advocacy page for additional information about the association’s advocacy work and how you can get involved. 

Tags:  california  VDA  voluntary disclosure agreements 

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