Updated 3/15/2024
While restaurant owners and managers often wear many hats, unclaimed property expert is not likely to appear in their job description. With states becoming increasingly more aggressive on unclaimed property enforcement, businesses such as those in the restaurant industry with high-volume transactions and frequent payments to individuals are firmly in the crosshairs of audit activity.
What is Unclaimed Property?
Unclaimed property refers to financial assets, such as money or valuables, held by a business or organization that have not been claimed by the rightful owner. Many small business owners are unaware that aged balances due to customers, vendors, or former employees may be reportable to the state as unclaimed property. However, with a little bit of planning and awareness of key issues, unclaimed property exposure can be one less worry on a restauranteur’s mind.
Common Unclaimed Property Issues Affecting Restaurants
Payroll
The short dormancy period of uncashed payroll checks (typically one year) and high turnover rate in the restaurant industry make payroll perhaps the biggest unclaimed property target area. Restaurant owners should be sure to maintain accurate contact information of employees to ensure that all payroll is timely issued. While direct deposit has been a beneficial asset to payroll escheatment, many restaurants have employees who still receive traditional checks, creating potential exposure.
Expense Reimbursements
Similar to payroll, expense reimbursements are often in the form of checks and may be issued after the termination of an employee. Many expense reimbursement checks remain uncashed because they are often small and get misplaced. The holding period for expense checks is usually longer than payroll checks, but should still be reviewed on a regular basis to avoid future escheatment issues.
Gift Cards
Unused gift cards of unclaimed property are one of the most complex areas due to the holder’s inability to track the true owner of the gift card let alone their location. Moreover, the original buyer is rarely the owner of the gift card. Additionally, states are widely divided on the treatment of whether or not gift cards are even escheatable. The result leaves holders trying to determine if they have a reporting obligation, and to which state.
Uncashed Vendor Checks
While rare, payments to vendors that remain uncashed could lead to an unclaimed property reporting obligation. Oftentimes, these payments are to current vendors, so the first step should always be to contact the vendor to determine the status of the payment. Holders should also explore various state Business-to-Business exemptions to determine if the property is escheatable.
Creating an internal review process to identify uncashed checks, outstanding gift cards, aged credit balances, or other outstanding payables, is an important first step in reducing unclaimed property exposure. Maintaining detailed accounting records and effective owner outreach is also essential in returning the unclaimed property to the owner and avoiding the escheatment process altogether (or at least reducing the amount to be remitted). If detailed policies and procedures are created and followed, then unclaimed property reporting will be a manageable task.
Please reach out to Jeff Monsman or your GBQ advisor if you have any questions regarding your restaurant’s unclaimed property practices.
Article written by:
Jeff Monsman, JD
Director, State & Local Tax Services
Related Topics
Top 10 Restaurant Topics In 2024
Protect Your Restaurant From Fraud
Is Your Restaurant Benefitting From This State Tax Strategy?
