What Department Stores Don't Do Credit Checks

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					                                                                Reprinted from

                                                             February 16, 2004
                                                                COVER STORY

                                    Unclaimed property
                                    under state scrutiny
                                                                By Carol Latter
         ompanies throughout Connecticut —        business owner faced with this dilemma, I            unclaimed property to its rightful owner.

C        from credit unions and insurance
         companies to publishers and depart-
ment stores — may be breaking the law with-
                                                  might wonder, ‘If I come forward, will I get
                                                  audited for 20 years?’ And if I don’t know the
                                                  answer to that question, what do I do?”
                                                                                                           In the case of a restaurant that has issued
                                                                                                       a gift certificate, for example, “it could be a
                                                                                                       good business decision for the restaurant to
out knowing it. And they could face penalties        Still, he cautions, “you definitely don’t         go out and find these people and tell them to
and substantial liabilities if they’re caught.    want to get audited [involuntarily], because         use the gift certificate, because typically, the
    That’s the message from Blum Shapiro, a       there is no statute of limitations, and it’s like    customer spends more than the value of the
financial services firm based in Hartford.        a 100 percent tax. Whatever the state or             gift certificate,” he says. “And isn’t it better for
Doug Joseph, the firm’s director of state and      contract auditor finds … they get to collect.         the benefit of the gift certificate to go toward
local tax consulting services, says companies     There can be huge penalties and interest,            the customer rather than into the coffers of
holding unclaimed assets, whether they’re         especially if there are numerous years               the state?”
unredeemed gift certificates or uncashed          involved in the audit. It depends on the                 Joseph concedes that in many cases, the
payroll checks, are required to report and        state, some may go back 10 [years], some             businesses have no way of knowing who the
transfer those assets to the state by March       may go back 20, and I’ve heard of more than          rightful owner is.
31 each year. If they don’t, and are audited,     that.”                                                   In that case, he says, “I think the best
they could face serious consequences.                He says the state of Delaware, in particu-        strategy is to attempt to quantify the past
    Unclaimed property is defined as any           lar, “is extremely aggressive in this regard,”       exposure, try to return as much unclaimed
financial asset that hasn’t been redeemed,         mainly because it’s considered an incorpora-         property to the rightful owner as possible,
cashed or claimed by its owner for a specified     tion haven and so many companies have                clean up the books and correct any accounting
“dormancy period.” In Connecticut, that           incorporated there. But he says every state is       errors so only real unclaimed property
dormancy period is usually three or more          actively pursuing the money that’s owed to it.       remains.”
years, depending on the type of property             Joseph says one potential solution to                 Then, he says, “have your accountant
involved. Examples of such property include       this problem is for states to develop formal         contact the various states where the
uncashed money orders and travelers’ checks,      voluntary disclosure agreement programs,             unclaimed property needs to be remitted,
bank accounts, stocks, security or utility        similar to those already in place for sales and      and try to work out an informal agreement
deposits, consumer credit balances, and even      use taxes. That type of program,“allows the          on a voluntary basis, and limit the exposure
unclaimed insurance benefits.                      business to have its advisor come forward            for unclaimed liability.”                        s
    Unclaimed assets belonging to Connecti-       voluntarily and contact the state, and they
cut residents revert to the state. Property       enter into an agreement whereby the taxpayer
belonging to non-residents must be reported       will agree to pay, usually, three years of tax and
and transferred to the state that the owner is    interest. And once the agreement is in place, the
last known to have lived in. When the holder      advisor informs the state who the client is.”           Types of unclaimed property
of the asset lacks an address for the rightful       He says in the area of unclaimed property,
owner, the property reverts to the state in       “I understand that there are some informal              • Bank accounts
which the holding company is located or           procedures in place, but I think they vary
                                                                                                          • Uncashed money orders and travelers’ checks
incorporated.                                     widely from state to state and, depending on
    In light of Connecticut’s dire fiscal situa-   the business, within a state.”                          • Unredeemed gift certificates
tion, Joseph says, the Treasurer’s Depart-           He says a formal program might make                  • Vendor and consumer credit balances
ment is hot on the trail of Connecticut firms      some business owners more willing to come
that have failed to comply with laws govern-      forward, if they knew they “could register              • Uncashed payroll, vendor and cashiers’ checks
ing unclaimed property. And it’s performing       and pay three years of liability, and it would          • Unclaimed insurance benefits
an increasing number of audits to find out         end there.”
which firms are breaking the law.                     For states, such programs are a win-win              • Royalty payments
    The problem, he says, is that although        proposition, he says. “They know they’re                • Unclaimed security deposits
there has been a fair amount of publicity         going to get a few years of past compliance.
                                                                                                          • Uncashed benefit and dividend checks
about unclaimed property rules in the last        They’re also going to get a committed tax-
year or two, many business owners still           payer going forward, instead of a taxpayer              • Stocks, bonds and mutual fund shares
aren’t aware of them, and those who are           that’s going to continue to fly below the radar          • Cash
aware of them may be afraid that they’ll          because they’re afraid of what’s going to
trigger massive audits if they come forward       happen if they start to comply.”                        • Safety deposit box contents
voluntarily.                                         Until such programs are in place, however,           • Tangible property
    “I don’t know if they see any sense           he recommends that business owners first try
of urgency to comply,” Joseph says. “As a         to solve the problem by trying to return

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