TWIST - This Week in State Tax

On June 4, 2024, Connecticut Governor Ned Lamont signed Senate Bill 393 into law, which makes several changes to unclaimed property compliance requirements. These modifications encompass new owner notification requirements and specific provisions for the treatment of unclaimed virtual currency. The bill becomes effective on July 1, 2024.

Due Diligence Outreach Timing, Methods and Content Parameters Revised: Like most state unclaimed property laws, Connecticut’s unclaimed property statute requires that businesses holding unclaimed property (holders) must notify the owner (due diligence) before reporting the property to the state. Under the newly enacted legislation, this notification process must be initiated at least 180 days prior to reporting for wage-related property and utility deposits.

The legislation further details the due diligence process. Holders must undertake reasonable measures to prevent presuming abandonment. They are required, “at a minimum.” to send a notice via first-class mail to the owner’s last known address, and if the owner has consented to email communication, an email notice should also be sent to the owner’s last known email address. The new legislation has also expanded the content requirements for the notice. If the property is a security, virtual currency, or tangible property from a safe deposit box, the notice must inform that the property may be liquidated either before or after being reported to the Treasurer. Furthermore, the notice must state that following liquidation, an owner’s claim will be limited to the liquidation proceeds.

Report Content Requirements Modified: Senate Bill 393 mandates that holders not only report the physical address of the owner but also the owner’s email address and telephone number, if any.

Virtual Currency Covered and Requirements Established: Consistent with the trend of states adopting specific unclaimed property provisions for virtual currency, Senate Bill 393 includes virtual currency in the definition of “property,” The bill also defines virtual currency by referencing another section of Connecticut law. In addition, the bill stipulates that if the owner has not accessed the secure system holding the virtual currency for three years, the property is presumed abandoned.

Liquidation of Safe Deposit Contents and Virtual Currency Pinpointed: Virtual currency and the contents of safe deposit boxes must be sold, and the net proceeds delivered to the Treasurer within 30 days of filing the required report. However, the statute allows the holder to deduct lawful charges such as storage, appraisal, advertising, and sales commissions. For safe deposit boxes, any charges owed under the rental contract also can be deducted.

Conclusion: The modifications to the Connecticut unclaimed property law may impact a holder’s due diligence, reporting and remittance practices and overall compliance policies and procedures. For more information about the revisions and the potential impacts for your organization’s compliance, please contact Will King, Marion Acord, or Ryan Hagerty with KPMG’s National Unclaimed Property Team.

House Bill 5524, which was enacted on June 6, 2024, makes a couple of changes to the Connecticut Corporate Business Tax. Currently, the state has a 20-year operating loss carryforward period.  For operating losses incurred in income years commencing on or after January 1, 2025, losses may be carried forward for thirty income years. When Connecticut moved to unitary combined reporting, the General Assembly adopted a deduction for publicly traded corporations that experienced an increase in their net deferred tax liability or an aggregate decrease their net deferred tax assets, or an aggregate change from a net deferred tax asset to a net deferred tax liability, referred to as the “FAS 109 deduction.” The deduction began in 2021 and was spread out over a 30-year period. Under House Bill 5524, a new deduction is allowed for certain combined groups that did not include the impact of any valuation allowance arising from the move to combined reporting when the group initially calculated the FAS 109 deduction.  Specifically, if enactment of combined reporting resulted in an aggregate decrease in the amount of net operating losses or tax credits a combined group's members may realize in Connecticut and a valuation allowance was reported as a result, the combined group will be entitled to a new deduction. "Valuation allowance" means the portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized. This deduction is available for a 30-year period, beginning with the combined group's first income year that begins in 2026. Any combined group intending to claim this deduction must file a statement with the Commissioner of Revenue Services on or before July 1, 2025, specifying the total amount of the deduction the combined group claims. If you have any questions, please contact Michael Rylant. 

On May 2, 2024, Florida Governor Ron DeSantis signed House Bill 989 into law, which makes significant changes to Florida’s unclaimed property code. Many of the new and revised provisions took effect immediately upon the Governor’s approval. The bill modified numerous provisions, such as including virtual currency under the statute’s purview and using the owner’s death to accelerate dormancy periods.

Owner Contact Standard Clarified and Securities Dormancy Triggers Modified: House Bill 989 introduces provisions that define an owner’s electronic contact as an “expression of interest,” effectively delaying the start of the dormancy period. The bill further includes a definition of “record” that encompasses information stored in an electronic medium. It stipulates that a record related to the property, communicated by the owner to a business holding the property (holder), is considered an expression of owner interest.

Furthermore, the bill modifies the dormancy trigger for securities by removing the “returned from post office” (RPO) mailing component and introducing death as one of the triggers. To clarify, the previous law used the earlier of owner inactivity or RPO as triggers. The revised law now determines the triggers as the earlier of owner inactivity or death.

Dormancy Periods Accelerated Upon Death: Two Provisions – General and Securities: The legislation introduces a provision applicable to all covered property types that may accelerate the dormancy period if the owner is deceased. More specifically, if the holder learns of or receives confirmation of an owner’s death, the property is presumed unclaimed two years after the date of death. However, an exception is made if a fiduciary, appointed to represent the owner’s estate, expresses interest in the property before the end of this two-year period.

Also, the revised law includes a special provision for securities that accelerates the dormancy period upon the owner’s death. If the holder receives a death certificate, a notice of death from an administrator, beneficiary, relative, trustee or personal representative of the owner, or any other evidence from which the holder can reasonably conclude the owner is deceased, the dormancy period is triggered three years after the date of the death of the owner. Alternatively, if such notice or evidence is received within two years of the owner’s death, the dormancy period is shortened to one year after the date on which the owner receives the notice, so long as it is received two years or less after the owner’s death and the holder lacked knowledge of the owner’s death during that period.

Due Diligence Requirements Enhanced: State laws generally mandate that holders notify owners before reporting, in an attempt to prevent the property’s transfer to the state. These statutory notices, known as “due diligence,” typically follow a prescribed method and timeline. Effective January 1, 2025, House Bill 989 expands the definition of due diligence to include email. The revised provisions will allow email notices as an alternative to United States Postal Service (USPS) notices, provided the owner has elected to receive notices in this manner.  Effective January 1, 2025, the legislation also modifies the content requirements for due diligence notices. The new requirements, similar to those in the 2016 Revised Uniform Unclaimed Property Act (“RUUPA”), include specific header language for the notice, a statement indicating that if the property isn’t legal tender of the United States, it may be sold or liquidated by the state, a statement confirming that the property is currently with the holder, and instructions on how to prevent the holder from reporting and paying the property to the state.

Record Retention and Statute of Limitations Expanded: Similar to other states, the legislation extends the record retention period from five years to ten years after the property becomes reportable. This change aligns with the statute of limitations set at ten years after the duty arose. However, the bill clarifies that the statute of limitations is tolled by the either the delivery of an audit notice by the Florida Department of Financial Services or their audit agent, or the holder’s written election to enter into an unclaimed property voluntary disclosure agreement with the state.

Aggregate Reporting Limit Lowered: Many states permit items of the same property type valued below a certain threshold (aggregate limit) to be combined and reported “in the aggregate”. Prior to the enactment of House Bill 989, Florida’s aggregate limit was $50. House Bill 989 reduces this limit to $10 beginning January 1, 2025.

Audit Records Request Authorization Broadened and Other Enforcement Measures Outlined:  The legislation has expanded the state’s authority to request and review records from a holder or their agent/affiliate/representative during an unclaimed property audit. The updated unclaimed property law now permits the state to request records to “verify the completeness or accuracy of the records provided, even if such records may not identify property reportable to the department.” In addition, House Bill 989 enhances the state’s authority to request verified unclaimed property reports and conduct unclaimed property compliance reviews.

Virtual Currency Covered and Requirements Set: Consistent with recent state trends, House Bill 989 incorporates “virtual currency” into the definition of “intangible property” and outlines its unclaimed property treatment. The revised law assigns a five-year dormancy period to virtual currency, triggered by lack of owner communication and mandates liquidation within thirty days before the holder files the unclaimed property report. Furthermore, the revised law states that: “Upon delivery of the virtual currency proceeds to the department, the holder is relieved of all liability of every kind in accordance with the provisions of s. 717.1201 to every person for any losses or damages resulting to the person by the delivery to the department of the virtual currency proceeds.”

Conclusion: The above summary highlights the more significant statutory revisions. For more information about these and other revisions, their implementation, and the potential impacts for your organization’s compliance, please contact Will King, Marion Acord, or Ryan Hagerty with KPMG’s National Unclaimed Property Team.

The South Carolina Administrative Law Court recently ruled in favor of the Department of Revenue in a case involving the sourcing and apportionment of a credit card network taxpayer’s income for corporate income tax purposes. The taxpayer, the operator of a worldwide credit card network, generated revenue by charging fees based on the number of credit and debit transactions from branded cards and the gross dollar volume of those transactions. The transactions were initiated when cardholders presented branded credit or debit cards to accepting merchants as payment for goods and services. Although the taxpayer had not filed any corporate tax returns for the audit period, the key issue before the court was way the gross receipts generated from transactions initiated at merchant locations in South Carolina should be sourced. The Department’s position was that receipts from South Carolina initiated transactions were attributed to the state. In contrast, the taxpayer’s position was that while credit card transactions occurred in South Carolina, its network was not present in the state, and it had no state-sourced income.

The court first determined that the taxpayer’s payment network was present and operating in South Carolina, and the taxpayer was doing business in the state. Under South Carolina law, service receipts are sourced to the state where the income-producing activity occurs. As such, the taxpayer’s income should have been sourced to South Carolina to the extent that the income-producing activity was performed in the state. In the case of the taxpayer, the court found that the relevant income-producing activity was providing access to the network, which facilitated credit card transactions between merchants and cardholders throughout the country, including South Carolina. That income-producing activity occurred in South Carolina when a transaction was initiated in the state, as the taxpayer’s authorization, clearing, settlement, and assessment platforms were all used to process these transactions. The taxpayer argued that its income producing activity was the processing and delivery of information between the Issuer (cardholder’s) and Acquirer (merchant’s) banks which was entirely outside South Carolina and did not involve the cardholder or merchant.

While it was undisputed certain transaction processing functions occurred at locations outside South Carolina, in the court’s view those functions were secondary to the activity that truly generated revenue. There was also an extensive discussion in the opinion over who was the taxpayer’s customer. The court rejected the taxpayer’s assertion that its income was generated solely by the service it performed for the Issuer and Acquirer banks, which were its direct customers. The taxpayer, the court noted, promoted its cards and services to both cardholders and merchants, had designed specific benefits for each, and generated income based on their activities. The merchants and cardholders who, because of the payment network, were able to consummate cashless transactions, were beneficiaries of the taxpayer’s services. Having concluded that the taxpayer had receipts sourced to South Carolina, the court next addressed penalties and interest. The court upheld the Department’s assessment of failure to file penalties and interest, but because of the complexity of the issues presented, the court concluded that the taxpayer exercised ordinary business care and prudence such that the majority, but not all, of the failure to pay penalties should be waived. Please contact Jeana Parker with questions on Mastercard International Incorporated v. South Carolina Department of Revenue.