Pennsylvania Corporations To Fund State Spending Increase

On February 4, Governor Corbett proposed his 2014-2015 budget, keeping his promise not to increase taxes, despite a nearly $1 billion proposed increase in spending. However, the budget includes a $150 million increase to state revenue that is to be funded by Pennsylvania entities and their vendors. Under the governor's proposal, this $150 million increase in revenue will be obtained through a change to the commonwealth's unclaimed property law.1

Under Pennsylvania's unclaimed property law, Pennsylvania-incorporated entities that hold certain property for the actual owners, including uncashed checks and outstanding credits, must remit that property to Pennsylvania after a period of inactivity, referred to as the dormancy period. For example, Pennsylvania-incorporated entities must pay unidentifiable credits over to Pennsylvania after the dormancy period. Further, any vendors holding credits to Pennsylvania-based businesses must pay those credits over to Pennsylvania after the dormancy period.2 Once the property has been remitted, the commonwealth is supposed to hold the property in trust for owners to claim. However, in reality, the value of the unclaimed property remitted to the commonwealth goes directly to the General Fund as revenue. The state returns only an estimated 5 percent of the almost $2 billion of unclaimed property it holds each year.3

Currently, the dormancy period for most property is five years.4 So, for example, a credit issued to a Pennsylvania customer in 2011 becomes dormant in 2016—absent any customer-initiated activity—and is remitted to Pennsylvania with the unclaimed property report due in April 2017. This is true even where the holder and the Pennsylvania customer still do business together. The governor's proposal is to reduce the dormancy period from five to three years—in order to accelerate state revenue.5 The governor views the change as merely a "timing issue,"6 but it can have real implications for Pennsylvania businesses.

First, any late reporting of unclaimed property by a holder as a result of slow adaptation to the change in the dormancy period would result in an interest accruing at a rate of 12 percent per year on any property reported late.7 So, for example, if a Pennsylvania-incorporated company remits a credit after year five as opposed to year three, the company will be subject to interest.

Second, Pennsylvania businesses will be forced to use any credits they have on account with their vendors more...