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Diann Smith focuses her practice on state and local taxation and unclaimed property advocacy. Diann advises clients at any stage of an issue, including planning, compliance, controversy, financial statement issues and legislative activity. Her goal is to find the most effective method to achieve a client's objective regardless of when or how an issue arises. Diann emphasizes the importance of defining a client's objective - whether it is finality of a frequently audited issue, quick resolution of a stand-alone tax liability, or avoiding competitive disadvantages in the application of a tax. The defined objective then governs the choice of the path to a solution. Read Diann Smith's full bio.

In two weeks, the Delaware Secretary of State (SOS) will begin mailing notices to holders who have been identified as likely being out of compliance with Delaware unclaimed property law. Holders that do not enroll in the SOS Voluntary Disclosure Agreement Program (VDA Program) within 60 days of the mailing of this notice will be

On August 1, the Delaware Department of Finance (DOF) published a revised version of its proposed reporting and examination manual regulation addressing audit procedures and method of estimation.  See 21 DE Reg 123 (Aug. 1, 2017). The revised proposed regulation is substantially similar to the first draft proposed earlier this year, but contains a dozen or so notable differences (described in more detail below). Because the former draft of the regulation was never finalized, the 60-day time period for eligible holders to convert to the Voluntary Disclosure Agreement (VDA) Program (administered by the Secretary of State) or an expedited audit has not started to run, and will not commence until the final DOF regulation is published in the monthly Register of Regulations. Based on the fact that the DOF is accepted comments through August 31, 2017 (and likely needs at least a month to take them into consideration), the final regulation is not expected to be published before October 1, 2017, giving eligible holders at least three more months before the looming conversion deadline.

Our summary of the initial regulations proposed by the DOF and Secretary of State (SOS) on April 1, 2017 is available here. The final SOS VDA estimation regulation was published on July 1, 2017, without substantive amendments. See 21 DE Reg 50 (July 1, 2017). Below is a brief summary of the key differences between the old and new proposed DOF reporting and examination manual that holder’s should be aware of.


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On August 9, 2017, the US Court of Appeals for the Third Circuit (Third Circuit), overruling the US District Court for the District of Delaware (District Court), allowed a claim by a holder seeking to prevent an unclaimed property audit by Delaware on due process grounds to proceed. See Plains All American Pipeline L.P. v. Cook et al., No. 16-3631 (3d Cir. Aug. 9, 2017).  The procedural due process claim challenges Delaware’s use of auditors that have a stake in the assessment. Consistent with the District Court decision, the Third Circuit held that challenges to Delaware’s estimation methodology were ruled not ripe. The case has been remanded to the District Court for further proceedings.

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Yesterday the Illinois House of Representatives voted to override Governor Bruce Rauner’s veto of Senate Bill (SB) 9, the revenue bill supporting the State’s Fiscal Year (FY) 2017-2018 Budget. Just days before the vote, SB 9 was amended to include a revised version of the Illinois Unclaimed Property Bill (House Bill (HB) 2603) on which we’ve previously reported. The new law (part of Public Act 100-0022) is known as the Revised Uniform Unclaimed Property Act (RUUPA). The RUUPA becomes effective January 1, 2018. Below is a brief summary of a few of the highlights of which holders should be aware.

Gift Cards, Loyalty Cards and Game-Related Digital Content Exempt

Unlike HB 2603, the Illinois RUUPA expressly excludes “gift cards” from the definition of “property” subject to escheat. Pulling (in-part) from the Uniform Law Commission (ULC) definition, “gift card” is defined in the Illinois RUUPA as “a stored-value card: (i) issued on a prepaid basis in a specified amount; (ii) the value of which does not expire; (iii) that is not subject to a dormancy, inactivity, or service fee; (iv) that may be decreased in value only by redemption for merchandise, goods, or services upon presentation at a single merchant or an affiliated group of merchants; and (v) that, unless required by law, may not be redeemed for or converted into money or otherwise monetized by the issuer.”
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The Connecticut Department of Revenue Services (DRS) recently issued demand letters to many remote sellers requiring that they either: (a) provide electronic sales records for all individual sales shipped to a Connecticut address over the past three calendar years; or (b) register to collect and remit Connecticut sales and use tax. This action is consistent

Last Friday, the Delaware Senate released a substituted version of the bill (Senate Bill 79) introduced last month as a technical corrections bill to Senate Bill 13—the unclaimed property rewrite legislation enacted earlier this year.

The Senate substitute differs from the introduced version of Senate Bill 79 as follows:

  1. It does not strike § 1147(a)—the provision that limits the ability of a holder to assign or otherwise transfer its obligation to pay or deliver property or to comply with the unclaimed property law to others (aside from a parent, subsidiary or affiliate of the holder).
  2. It would delay the timeline that Delaware must promulgate regulations to December 1, 2017.
  3. It would make changes to the State Escheator’s authority to grant waivers of interest and penalties under § 1185 as follows:
    1. Removes the language in the introduced bill that made the discretionary waiver of penalties only applicable to late filed property remitted while under examination.
    2. Gives State Escheator the following waiver authority for property remitted before January 1, 2019:
      1. Waive, in whole or in part, the calculable interest under § 1183 of this title for unclaimed property remitted to the State with a required report under § 1142 (the general holder report section) or § 1170 (the compliance review section) of this title.
      2. Waive, in whole or in part, the calculable interest under § 1183 of this title for unclaimed property remitted to the State as a result of securities examinations in which estimation is not required under §§ 1171 and 1172 of this title.
      3. Waive up to 50 percent of the calculable interest under § 1183 of this title for all unclaimed property remitted to the State and not provided for in paragraphs (b)(1) or (b)(2) of this section.
    3. Gives State Escheator the following waiver authority for property remitted on or after January 1, 2019:
      1. Waive, in whole or in part, the calculable interest under § 1183 of this title for unclaimed property remitted to the State with a required report under § 1142 (the general holder report section) or § 1170 (the compliance review section) of this title.
      2. Except for examinations expedited under § 1172(c) of this title, waive up to 50 percent of the calculable interest under § 1183 of this title for all unclaimed property remitted to the State and not provided for in paragraph (c)(1) of this section.


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Earlier this year, an unclaimed property rewrite bill (HB 2603) was introduced in the Illinois House that would require holders to retroactively report a number of property types currently exempt. The provision would require a retroactive period of 10 report years. Items that are currently exempt that would become reportable include gift cards and property resulting from business-to-business (B2B) transactions.
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Last month, a bill (The False Claims Amendment Act of 2017, B22-0166) was introduced by District of Columbia Councilmember Mary Cheh that would allow tax-related false claims against large taxpayers. Co-sponsors of the bill include Chairman Jack Evans and Councilmember Anita Bonds. Specifically, the bill would amend the existing false claims statute to expressly authorize tax-related false claims actions against persons that reported net income, sales, or revenue totaling $1 million or more in the tax filing to which the claim pertained, and the damages pleaded in the action total $350,000 or more. The bill was referred to the Committee of the Whole upon introduction, but has not advanced or been taken up since then. Nearly identical bills were introduced by Councilmember Cheh in 2013 and 2016.
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On Saturday, April 1, 2017, the Delaware Department of Finance (DOF) promulgated two regulations that would repeal all existing unclaimed property regulations and replace them with a single DOF regulation containing a revised Reporting and Examination Manual. The Secretary of State (SOS) also promulgated a regulation that outlines the method of estimation to be used for participants in the Voluntary Disclosure Agreement (VDA) Program. These promulgations are in accordance with the General Assembly’s instructions to do so in Senate Bill 13, which was passed in January and enacted by Governor John Carney on February 2, 2017. Any written submission in response to these regulations must be sent to the respective agency by Wednesday, May 3, 2017 at 4:30PM EST.
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Most states are well off to the races with their 2017 legislative sessions and several states have gift card legislation pending that would impact unclaimed property holders.

Oregon

On January 9, 2017, a bill (SB 113) was introduced in the Senate that would create a new unclaimed property reporting obligation for gift cards, which would