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Transportation Brief: Unclaimed Property: A Lurking Liability for the Unwary

by Kelli M. Block

February 2, 2022

Despite widespread reports of burgeoning state coffers, the efforts of many states to disgorge businesses of funds - including accounts receivable, credit memos, and uncashed checks - that may be cast as “unclaimed property” have continued unabated into 2022. This is not too surprising given the extent to which some states rely on unclaimed property returns as a source of revenue. For example, Delaware collected nearly $560 million in unclaimed property in 2019. With results like Delaware’s as the model, some states have become even more aggressive in their pursuit of so-called unclaimed property via widening use of third-party auditing firms, several of which work on a contingency basis.

Whether transportation companies realize it or not, the frequent rate adjustments transportation companies must make over the course of any given day often result in credit memos that unclaimed property auditors will regard as being subject to liability under various state unclaimed property laws. Often, state unclaimed property auditors will view credit items related to duplicate and unidentified customer payments as subject to reporting and remitting under state unclaimed property laws even though federal law governs how motor carriers must treat such payments.

For these and other reasons, third-party auditors seem increasingly apt to target transportation companies for multi-state unclaimed property law compliance reviews. The administrative burdens associated with participating in an unclaimed property examination may be substantial because the statute of limitations on such examinations is lengthy, often reaching back in excess of 10 years. And the potential for liability may be significant, particularly given the ability of the states to impose penalties and interest on unreported unclaimed property.

That said, federal laws governing regulated motor carriers, property brokers, and freight forwarders protect some of the unclaimed property held by those businesses from the reach of state unclaimed property laws under certain circumstances. Some states also exempt certain types of unclaimed property from reporting and remitting requirements. Transportation companies should ensure they have implemented specific, written protocols for handling various types of accounts receivable and accounts payable credit items. If care is not taken, a company may find it difficult (if not impossible) to limit its exposure in the event a state unclaimed property auditor comes knocking.

 


Scopelitis’ Transportation Brief® is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.


 

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