TWIST - This Week in State Tax

On March 11, 2024, Governor Brad Little of Idaho signed House Bill 471 into law. This bill repeals the existing unclaimed property statute and replaces it with a customized version of the 2016 Revised Unclaimed Property Act. The new Idaho law (IDRUPA) takes effect July 1, 2024, and makes many changes to the current law, including but not limited to, adding provisions extending the law’s coverage to virtual currency and providing that the death of an owner triggers the running of dormancy periods.

Determining When Property Is Reportable to the State (Dormancy Periods and Triggers)

Idaho’s new law modifies when particular property types become reportable and must be remitted to the Idaho state treasurer. For example, the new law limits the “rollover” of automatically renewable certificates of deposits (ARCD) by making them reportable five years after the initial maturity date “plus one annual renewal.”[1] Existing law provides that ARCDs are reportable on the initial maturity date unless the owner consents at or about the time of renewal by communicating in writing with the banking or financial organization. Under existing law, the property is matured upon the expiration of the last period for which consent was given.

In addition, health savings accounts are assigned specific treatment under IDRUPA; they are reportable three years after the earlier of the date the Internal Revenue Code requires distribution to avoid a tax penalty, the date the business holding the property (holder) confirms or receives confirmation of death, or 30 years after the date the account was opened.    Existing law does not specifically mention health savings accounts.

The treatment of securities is also revised under House Bill 471.  While the securities dormancy period remains the same as the previous law (five years), the trigger for the running of the dormancy period, for the most part, will become returned from the post office mailings as opposed to lack of owner activity AND returned from post office mailing as provided under existing law.

Consistent with the unclaimed property laws in about half of the other states, House Bill 471 makes Idaho a mineral interest “current to pay” state. This means that once a royalty in a mineral interest owner’s account reaches the dormancy period of five years, that royalty payment and all other items in the account are reportable. Further, any other payments to that owner’s account in the future become reportable on the next reporting deadline without having to be dormant for the five-year period.

 Dormancy Periods Accelerated and Owner Contact Extended

For certain property types that normally have dormancy periods of two years or more, IDRUPA accelerates the dormancy period to two years after the date of last activity if the owner is deceased. This change applies to various types of property, such as mineral interests, cashier’s checks, accounts receivables, savings and checking accounts, insurance proceeds and certificates of deposit. Further, IDRUPA includes a provision that changes the dormancy trigger for owner inactivity for particular property types if the dormancy period is greater than five years and an inactivity charge is imposed by the holder. Property such as traveler’s checks and certain money orders could be impacted by this provision.

In addition, House Bill 471 provides that a recurring automated clearinghouse debit or credit previously authorized by the apparent owner in an account at a financial organization is not an indication of owner interest that would prevent the running of the dormancy period. On the other hand, IDRUPA broadens application of the concept of owner contact “linkage.” In essence, contact linkage occurs when an owner indicates an interest in one account or property and that indication of interest is extended to other property held by the same business for the same owner, thereby preventing the running of the dormancy period on both items. Idaho’s existing law permits such contact linkage only among certain types of banking or financial organization types of property (i.e., savings and checking accounts). The new law extends the concept to any type of property.

Due Diligence Requirements Modified

Prior to reporting unclaimed property, state laws typically require the holder to provide notice to the owner to prevent the property from being transferred to the state. These statutorily required notices, or “due diligence.” usually must occur in a prescribed manner and timeframe. House Bill 471 provides that for property valued at $50 or more the notice must:

•       Be sent within 60 to 180 days prior to reporting.

•       Include specific language at the top of the notice and include certain information.[2]

•       Be delivered via both USPS mail and email (if the owner has consented to receiving emails from the holder and the holder does not believe the email address is invalid). Existing law does not include the email notice requirement.

IDRUPA does provide some relief from the due diligence requirement. If prior to providing the required notice, a holder attempts to provide email notice to the owner through an email address provided by the owner and the owner affirmatively confirms receipt of the notice or the owner otherwise indicates an interest, then due diligence is no longer required.

Record Retention and Statute of Limitations Expanded

The length of time and types of items that must be retained pertaining to unclaimed property compliance are expanded under IDRUPA. The record retention period increases from seven to ten years after the later of the date the report was filed or the last date a timely report was due to be filed. Further, House Bill 471 adds information that must be retained, including copies of due diligence letter responses, documentation of service charge deductions, and working papers documenting items that were not ultimately reported.

The bill also extends the statute of limitations. After a non-fraudulent report is filed, the statute of limitations for when the administrator may commence an action to enforce reporting payment or delivery of property is increased from three to five years. In addition, the new law increases from seven to ten years the time period during which the administrator may commence an action with respect to a duty of the holder.

“De Minimis” Exemption Eliminated / Retroactive Reporting of Exempted Amounts

The existing Idaho unclaimed property statute provides that property valued at $50 or less is not subject to the law. IDRUPA does not include this $50 “de minimis” exemption – effectively eliminating it. Further, the transition provision in IDRUPA provides that:

“an initial report filed under this chapter for property that was not required to be reported before July 1, 2024, but that is required to be reported under this chapter must include all items of property that would have been presumed abandoned during the seven (7) year period preceding July 1, 2024, as if this chapter had been in effect during that period.”

The elimination of the de minimis exemption coupled with the aforementioned transition provision may be interpreted to require the holder to report any funds previously exempted due to the de minimis exemption on the next report due after the July 1, 2024 effective date of the new law.

Virtual Currency Covered and Requirements Set

As seems to be a recent trend by states, IDRUPA defines “virtual currency” and provides for its unclaimed property treatment. In IDRUPA virtual currency is defined as:

“a digital representation of value used as a medium of exchange, unit of account, or store of value that does not have legal tender status recognized by the United States. The term virtual currency does not include: (a) The software or protocols governing the transfer of the digital representation of value; (b) Game-related digital content; or (c) A loyalty card.”

Correspondingly, House Bill 471 prescribes that virtual currency must be liquidated prior to the holder filing the unclaimed property report and that the owner shall have no recourse against either a holder who has acted in good faith or the administrator for any gain in value after liquidation.

Conclusion

The enactment of House Bill 471 makes numerous changes to the law, including new provisions for such things as virtual currency and health savings accounts. The preceding information is just a sampling of some of the more significant modifications. For more information regarding IDRUPA and its potential impacts for your organization’s compliance, please contact a member of KPMG’s National Unclaimed Property Team:

Will King 

Marion Acord

Ryan Hagerty 

The Arkansas Supreme Court recently concluded that two vehicle dealers owed sales tax on vehicles that were temporarily used by employees and relatives of the owner and general manager before being sold to customers. The vehicles were driven over 5,000 in most cases, and were assigned dealer license tags, which the dealers conceded were misused. The issue before the court on appeal was whether the use by these individuals’ constituted withdrawals from stock, which necessitated the payment of Arkansas sales tax. The dealers argued that no sale had occurred that would cause sales tax to apply, and the vehicles were always in fact available for sale when being used by the individuals. The Department’s position was upheld by an administrative law judge; the dealers appealed to the circuit court where they prevailed. The Arkansas Department of Finance and Administration (ADFA) then appealed to the state supreme court.

The court first noted that the language in the statute was so plain and unambiguous that judicial construction was limited to what was said. Specifically, the statute provided that a taxable event was triggered by the “withdrawal or use of . . . tangible personal property from an established business or from the stock in trade of the established reserves of an established business for consumption or use in the established business or by any other person.” Thus, contrary to the dealers’ arguments, the statute did not require a permanent withdrawal from stock or consumption of the property at issue, and the court observed that the rules of statutory construction did not permit it to read words into the statute that were not there. The record, the court stated, demonstrated that these individuals enjoyed the benefits of the vehicles in question as any person would enjoy a vehicle they owned; they relied on the vehicles as their primary means of transportation, transported their families and pets, ran personal errands, drove to and from work, and went on vacations in the vehicles. In the court’s view, it was clear that the vehicles were used, and therefore, withdrawn from stock based on the plain language of the statute.  Accordingly, the withdrawal of each vehicle was subject to tax. In reaching this conclusion, the court rejected the lower court’s conclusion that there were several more specific statutes in Arkansas law that governed the matter. One of those statutes required a consumer to pay sales tax on the purchase of a vehicle on or before the time for registration. The dealers argued that the ADFA was not entitled to assess tax twice –on both withdrawal and on the subsequent sale to a consumer. The court, however, noted that the tax at issue was assessed for the “use” of the vehicles and that a vehicle might be involved in multiple transactions during its lifetime that will trigger sales tax liability.  Further, a statute imposing fines for the misuse of dealer tags did not preclude the ADFA from imposing sales tax on the use of the vehicles. Two justices dissented, asserting that it was absurd to call the use of the vehicles a withdrawal from stock when they were in fact sold and tax as collected on the sale. Please contact Sadie Cuevas with questions on Arkansas Department of Finance and Administration v. Trotter Ford.

Over the last couple of years, states have been in an unprecedented period of revenue growth coming out of the pandemic. This has resulted in a number of recent corporate and individual income tax rate reductions. Some of this has continued into 2024, despite revenue growth slowing down. Effective for tax years beginning on or after January 1, 2024, Utah’s corporate income tax rate was reduced from 4.65 percent to 4.55 percent. In Idaho, House Bill 521, which reduces the corporate income tax rate from 5.8 percent to 5.695 percent effective January 1, 2024, was signed into law on March 29, 2024.  Legislation (House Bill 1023) has been sent or will soon be sent to Georgia Governor Brian Kemp for signature that would match the corporate income tax rate to the individual income tax rate in effect for the corresponding tax year.  Another Georgia bill that has passed both houses would accelerate already enacted individual income tax cuts (assuming revenue targets are met) and would drop the individual income tax rate to 5.39 percent effective for 2024.  In Missouri, the House has passed legislation (House Bill 2274) to phase out the current four percent corporate income tax by one percent each year beginning in 2025. In contrast, in Vermont House Bill 721 would increase the current 8.5 percent rate to 10 percent on income over $25,000 beginning in 2025 and would also eliminate deductions for GILTI and FDII. This bill has passed the House and is pending in the Senate. Other corporate tax increases have been proposed by the Governor in New Jersey (a 2.5 percent corporate transit surcharge) and by the Senate and Assembly in New York. Please stay tuned to TWIST for updates on corporate income tax rates.