For small and medium-sized businesses, tracking dormancy periods is a crucial aspect of unclaimed property compliance. The dormancy period refers to the specific timeframe an asset must remain inactive before it’s considered legally abandoned and reportable as unclaimed property to state governments.
Understanding Dormancy Periods
Understanding when property becomes dormant is essential because this triggers your legal obligation to report and remit these assets to the appropriate state unclaimed property office. Failure to properly track dormancy periods is one of the most common unclaimed property compliance mistakes made by small businesses.
Different types of unclaimed property have varying dormancy periods, even within the same state. Here’s what SMBs need to know about common dormancy timelines:
Most states set dormancy periods between 3-5 years for general business properties. However, certain property types have accelerated timelines. For example, uncashed payroll checks typically become reportable after just 1-3 years, reflecting the urgent nature of employee compensation. Vendor checks and customer refunds might have standard 3-5 year dormancy periods.
Customer credit balances often become unclaimed property after 3-5 years of inactivity, but some states have shorter periods for certain industries. Gift cards and stored value cards have varying rules—some states exempt them entirely, while others require reporting after 2-5 years.
The dormancy clock starts ticking from the “last activity date”—when the property became payable or distributable to the owner. For payroll checks, this is the issue date. For credit balances, it’s typically when the credit was established or last modified by owner activity. Understanding what constitutes “owner activity” is crucial because any legitimate owner-initiated contact or transaction resets the dormancy period to zero.
Examples of owner activity that restart dormancy periods include:
- Depositing or attempting to deposit a check
- Inquiring about account balances
- Updating contact information
- Making deposits or withdrawals
- Responding to due diligence communications
Tracking Due Diligence
Small business owners should implement tracking systems to flag potentially dormant assets before they reach reportable status. This proactive approach gives you time to perform required due diligence and potentially reunite owners with their property before state reporting deadlines.
Create aging reports for your accounts payable, accounts receivable, and payroll systems. Flag items approaching the applicable dormancy periods for your state. Many accounting software packages can generate these reports automatically once you configure the parameters.
Document all owner interactions carefully, as these records serve as evidence that dormancy periods have been reset. This documentation becomes critical during unclaimed property audits, where you must prove compliance with state dormancy requirements.
How to Get Started
Remember: Each state’s unclaimed property laws define specific dormancy periods, and multi-state businesses need to track requirements across all jurisdictions where they have reporting obligations. When in doubt, apply the shortest applicable dormancy period to ensure compliance across all relevant states.
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