Busy craft breweries with tap rooms and retail outlets must comply with an almost overwhelming number of rules and regulations. But we will bet you a beer you haven't heard of this one: the "non-tax tax," otherwise known as unclaimed or escheat property. Unclaimed property is technically not a tax, but it is something you have to pay to your state government.
Following are the rules and definitions of unclaimed property and the process for reporting it in Colorado. (Note that the processes for reporting unclaimed property vary by state.)
Unclaimed property defined
Unclaimed property is property that a business holds that is technically owned by someone else. Common types of unclaimed property include:
Uncashed payroll checks
Uncashed vendor checks
A check to an employee or vendor might not get cashed for a variety of reasons: It gets lost, the payee never receives it due to an address change, or the payee simply forgets to cash it. Payroll checks not cashed within one year are considered unclaimed property. The time limit for vendor checks is five years.
Gift cards also have a five-year limit, after which time the issuing retailer must count and report them as unclaimed property. This requirement is easy to overlook, especially for companies starting new gift card programs. Fortunately, the process for reporting both uncashed checks and gift cards as unclaimed property is simple.
How to report unclaimed property
Companies' sales and accounting software should capture uncashed check information. After all, they are checks that never "cleared." In addition, most systems used to track gift cards, amounts, and identification numbers will also track how long the cards have gone unredeemed. For most companies, the reporting process for reporting unclaimed property includes the following steps:
Since the 12-month reporting year for most businesses ends June 30, you should run a report at that time to determine the amounts and other details of any unredeemed gift cards and uncashed checks.
Beginning no earlier than July 1, the company must send written notice to owners (if known), notifying them that the property is being held and will shortly be reported to the state as unclaimed property.
Prior to the due date of November 1 each year, you must access Forms A and B – Report of Unclaimed Property at the Colorado State Treasury website. The report requests the following information, among other things:
Name and last known address of each property owner (if known);
Description of the property, including ID number and dollar value;
The date the check or gift card was issued; and
Additional details based on the type of unclaimed property.
Fill out the form online then print, sign, and mail with payment to the Colorado State Treasury using the address on the form.
Retailers with no unclaimed property are not required to file an annual report.
Call an accounting professional or the Great Colorado Payback at 303/894-2448 with questions, or visit the Great Colorado Payback website for more information.
The Great Colorado Payback maintains this information, as well as the unclaimed funds, and allows property owners to claim them through an online database.
Although gift cards are generally not tied to specific owners, they can be traced by their unique identification numbers. A gift card owner attempting to claim a gift card through the state's unclaimed property program must provide the card to the state so it can verify the identification number and ensure it was reported by the retailer.
If a gift card holder redeems a gift card that has previously been reported as unclaimed property, the vendor can submit the Holder Request for Reimbursement Standardized Holder Claim Form to the state to recover the cost of the gift card already remitted. Before redeeming the gift card to the customer, the vendor may wish to verify with the state that the owner has not already claimed the gift card directly with the state.
Consequences for not reporting unclaimed property might include a request from the state for the retailer to do a "self-audit," a formal review, and imposition of penalties and interest of up to 18 percent per year. Because self-audits can be time-consuming, and formal reviews even more so, companies should take the steps to remain in compliance and seek assistance from an accounting professional if needed. However, knowing that unclaimed property must be reported is the first step in achieving compliance.
Busy brewery retail managers might not want to add another item to their to-do lists, but ensuring compliance with Colorado's unclaimed property requirements can save time, headaches, and money down the road. Fortunately, the reporting process is simple, and there are resources available to help companies that need it.
EKS&H has more than 30 years of state and local tax (SALT) experience across multiple industries and jurisdictions. To learn more about how EKS&H can address your brewery's SALT issues, contact Mary Jo Zuelsdorf at firstname.lastname@example.org or John DeVore at email@example.com, or call 303/448-7000.