Claiming abandoned assets is a major source of income for Delaware, but experts say the state’s unclaimed property laws could harm businesses and residents.
The Division of Revenue collected more than $370 million last year through escheatment -- the process of reclaiming abandoned property -- making it the third largest source of revenue in the state.
Delaware is following a national trend where lawmakers strengthen escheatment laws to pad state coffers instead of raising taxes, said Val Golin, spokeswoman for ING DIRECT.
A few years ago, it was common for bank accounts and investments to be considered abandoned after a 16- to 20-year period without a transaction, Golin said.
But today the state claims abandoned bank accounts after five years, she said, and state lawmakers voted on June 30 to claim abandoned investments after three years.
Those laws put more people at risk for losing property to the state and, while people can reclaim their property, Delaware’s escheatment law borders on unfair, she said.
“There is just no way three to five years should be the timeline,” she said. “When is it going to stop? When the dormancy period is shortened to one year?”
Delaware was the 28th state to shorten the dormancy period on investments to three years, but it is unlikely the state will shorten the period further, said Patrick Carter, director of the Division of Revenue.
The shorter timeframe could actually benefit people, he said, because banks and companies are only required to search for owners of abandoned property twice in three years, he said.
“Then they stop looking and the property just sits there,” he said. “At least send the property to us and we’ll put the owners’ names on the Internet.”
The Division of Revenue operates a Web site where people can see if their property has been escheated, something the state cannot rely on banks or corporations to do, Carter said.
Corporations provide the bulk of Delaware’s escheatment revenue because of how the laws are written, Carter said. If an abandoned investment has no known owner, it is awarded to the state where the company is incorporated, he said.
That is good news for the bottom line in Delaware, a state that is the corporate home for 65 percent of the country’s Fortune 1,000 companies, he said.
Delaware also claims substantial revenue through enforcement where officials audit corporations to ensure they are escheating funds properly, he said.
The state collected $138 million last year through escheat enforcement, and better tactics have more than doubled escheat revenue over the past five years, he said.
But better escheat enforcement and shorter dormancy periods could have devastating effects on business in the state, said Rep. Bob Valihura (R-Talleyville).
Companies are beginning to complain that the state’s overzealous escheat enforcement disrupts their business, he said.
Moreover, the new practices have sacrificed Delaware's competitive edge over other states, like New York, which lost corporations to Delaware partly because of the First State’s passive, therefore corporate-friendly, escheat system, said Valihura.
“The benefit was so minor compared to what we have to lose if businesses decide they don’t need to be incorporated in Delaware anymore,” he said.
