Almost every business creates unclaimed property and almost none think about it: a payroll check a former employee never cashed, a vendor refund that bounced around and was written off, a customer credit balance sitting untouched for years. Those amounts do not belong to you. Under every state's law, after a dormancy period they must be turned over to the state, which holds them for the owner. Ignore the obligation and it compounds — often discovered years later in a contingency-fee audit.
This is general information, not individual tax advice — the right treatment depends on your specific situation.
What Counts as Unclaimed Property
The common categories for a typical business are uncashed payroll checks, uncashed vendor and commission checks, customer overpayments and unused credit balances, unrefunded deposits, and unredeemed rebates. Some states also reach unused gift-card balances. The dollar amounts are usually small individually and add up to a real liability across several years.
Dormancy Periods: When the Clock Runs Out
Dormancy is the period of owner inactivity before property must be reported. It varies by state and by property type: uncashed wages are commonly one year, while vendor checks and customer credits are often three years, sometimes five. Many states have been shortening these periods. The clock generally starts from the check date or the date of last owner contact.
You Report to the Owner's State, Not Yours
Under long-standing priority rules, unclaimed property is reported to the state of the owner's last known address. If you have no address, it goes to your state of incorporation. That means a company can have filing obligations in dozens of states at once, each with its own forms, deadlines, and dormancy schedule.
Due Diligence: The Letter You Must Send First
Before remitting, most states require you to try to reunite the owner with the property by mailing a notice to the last known address — typically within a window before the filing deadline, and generally for items above a small threshold such as $50. Done well, due diligence resolves a meaningful share of items before they ever leave your books.
Annual Reporting Deadlines
Most states run on a fall reporting cycle, with a large group due around October 31 or November 1 for property that reached dormancy earlier in the year; a smaller set of states report in the spring. Missing a cycle does not make the liability go away — it accrues interest and penalties in many states.
Why Auditors Love This Issue
States frequently outsource unclaimed-property audits to firms paid a percentage of what they find. There is often no statute of limitations if reports were never filed, so an audit can reach back a decade or more, and where records are missing, auditors are allowed to estimate the liability — usually not in your favor. Voluntary disclosure programs, offered by many states, let a business come forward and limit the look-back and penalties.
Building a Simple Compliance Routine
The frequent errors are predictable: writing uncashed checks back into income instead of holding the liability, assuming a business with no customers in a state has no filing there (your state of incorporation is the fallback), treating small balances as immaterial when many states apply no materiality threshold, and destroying the records that would prove what was owed and to whom. Reversing a stale check to "other income" is the one auditors look for first, because it converts someone else's property into your revenue.
The routine that avoids all of that is modest. Once a year, run an aged list of outstanding checks and open credit balances, research and clear what you can, send due-diligence letters on the rest, and file with each state where you have reportable property. Keep the workpapers and hold the records for the retention period your states require — often ten years. That annual effort is far cheaper than a multi-state audit.
How VarStan Helps
We help businesses identify where unclaimed-property exposure is building, set up an annual review and due-diligence process, and evaluate voluntary disclosure where past filings were missed. If you have never filed and are not sure whether you should have, that is worth a conversation before an auditor raises it.