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This advisory is published by Alston & Bird LLP to provide a summary of signicant developments to our clients and friends. It is intended
to be informational and does not constitute legal advice regarding any specic situation. This material may also be considered attorney
advertising under court rules of certain jurisdictions.
Unclaimed Property ADVISORY n
APRIL 17, 2014
New York Changes Its Administrative Position on B2B Transactions
B2B Exemptions Generally
Unclaimed property laws do not apply to all holders and property types in a uniform way, despite the Uniform Law
Commission’s sustained eorts to promulgate a uniform unclaimed property act (past eorts include the 1954, 1966,
1981 and 1995 Uniform Unclaimed Property Acts; and currently, as described in a recent advisory, the ULC is in the
process of revising the Uniform Act). One striking example of an issue with respect to which the states have failed to
embrace a uniform approach is the recognition of an exemption for property owed by one business to another—i.e.,
a business-to-business (B2B) exemption. While a number of states have enacted or recognize some form of B2B
exemption, a majority of states have not.
1
Moreover, the B2B exemptions that do exist vary signicantly in scope and
often lead to dierent results depending on the state in question; and in our experience, many holders have a limited
understanding of such exemptions.
Although New York has not enacted a statutory B2B exemption and does not otherwise recognize the existence of
such an exemption, historically, the New York Oce of Unclaimed Funds (NYOUF) has applied a B2B “deferral” policy,
which provides that certain amounts owed by a holder to another business association are not required to be reported
as unclaimed property so long as the holder has a current relationship with the other business. Thus, eectively, New
York has administratively agreed to “defer” the reporting of property derived from certain commercial transactions and
relationships to a point in time where the holder is no longer engaged in a current relationship with the other business
owner, rather than exempt such property from reporting altogether.
However, it has recently come to our attention that the NYOUF has reversed its administrative B2B deferral policy. This
advisory presents our understanding of the state’s new policy for B2B transactions and its potential impact on holders
that engage in business with New York-resident businesses.
1
The following states have enacted a B2B exemption: Arizona, Illinois, Indiana, Iowa, Kansas, Maryland, Massachusetts, Michigan,
North Carolina, Ohio, Tennessee, Virginia and Wisconsin. Texas administratively takes the position that certain amounts owed
by a holder to another business association are not required to be reported as unclaimed property as long as the holder has a
current relationship with the other business.
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New York State’s Historical B2B “Deferral” Policy
As indicated above, holders will not nd a New York statutory provision, or other formal published guidance, setting
forth New York’s B2B deferral position. However, the holder community has generally understood—and the NYOUF
has previously conrmed to us in writing—that New York has “for quite some time” in the past agreed to defer the
period of presumed abandonment for credit balances and accounts payable owed by one business association to
another, as long as those businesses have an ongoing business relationship.
2
Under this policy, such a B2B credit or an
account payable obligation that had not been paid by issuance of a check became escheatable only once the holder’s
ongoing business relationship with the other business association was terminated.
3
Under its prior administrative
practice, NYOUF would look to the most recent transaction between the holder and the business association, and
if no transaction had occurred within the statutory dormancy period, then the relationship would be considered
terminated and the property escheatable.
4
The New Policy – Reversal of B2B Deferral
The NYOUF recently issued a new policy statement regarding B2B transactions that essentially reverses the previous
administrative position on B2B deferrals. The statement provides as follows:
Section 1315 of the APL – Policy Statement on Business to Business Transactions
New York State’s Abandoned Property Law (APL), does not provide an exemption for business to business
transactions. Therefore, under APL S1315, credit balances, as well as checks representing the refund of credit
balances, whether payable to a business or an individual, are deemed abandoned if unclaimed for three
years. However, such property is not reportable to this Oce if the holder is able to demonstrate that the
customer has either: (i) used the credit balance, (ii) disclaimed entitlement to the credit balance, or (iii) is
aware of the credit balance.
Accordingly, prior to the time that a credit balance would be outstanding for three years, the holder must
contact the customer in writing advising the customer of the credit. The customer may: (i) request that the
credit be applied to an open invoice or request payment of the credit in the form of a check, (ii) disclaim
entitlement to the credit in writing, or (iii) acknowledge existence of the credit, but let the credit remain
outstanding. Please be advised that a holder cannot write o open customer credit balances in the absence
of written documentation evidencing that the credit was issued in error, or properly applied, or a specic
written disclaimer from the customer.
The three year dormancy period on credit balances commences at the time the credit is issued. However,
if there is written communication from the customer acknowledging the existence of the credit, or activity
2
The NYOUF has stated that the deferral only applies to credits (i.e., obligations not yet reduced to checks).
3
New York’s prior position was thus similar to Texas’ current administrative position. See, e.g., Tex. Unclaimed Property Reporting Instructions
(2010) (providing that “balances owed to current vendors” should not be reported, but a holder should report amounts owed to those
vendors with which it has had no contact for three years).
4
NYOUF previously indicated that even if the transaction producing a credit owed to another business occurred more than three years
previously, if the unused credit balance continued to be shown on monthly or quarterly statements sent to the business who was the
owner of the credit balance, thus armatively disclosing to the owner the availability of the credit balance, the requirement to report the
unused credit as abandoned property would continue to be deferred.
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with respect to the customer account aecting the amount of the credit balance (partial use of the credit),
the three year dormancy begins from the time of the written communication or activity.
With respect to business to business credit balances that are subsequently converted into a check, the
three year dormancy commences from the original date the credit was issued (or the date the customer last
acknowledged or used the credit balance) unless the holder was instructed in writing by the customer to
issue a check for the credit balance. If a check for the credit balance was issued upon the written request of
the customer, the issue date of the check would commence the dormancy period.
Credit balances are reportable to the State of last known address of the customer, as reected in the books
and records of the holder.
Note:
The above applies specically to business to business credit balances. In order to exclude a vendor check
from being reported as abandoned property we require that the holder document that the obligation was
otherwise satised or provide a signed conrmation from the payee acknowledging that the specic check
(issue date and amount) is not owed.
We interpret this policy statement as clearly reversing the NYOUF’s prior B2B deferral policy by explicitly noting that
property “under APL § 1315…. whether payable to a business or individual” is deemed abandoned if unclaimed for
the relevant dormancy period. The statement makes no mention of the concept that the reporting of B2B property
may be deferred while the holder has a current business relationship with the owner. Rather, the NYOUF states that
this policy “applies specically to business-to-business credit balances.” Accordingly, we believe that holders may no
longer rely on the NYOUF’s previously articulated B2B deferral policy.
Notably, this policy statement is contained on a single page, is not signed or otherwise labeled to indicate its origin
or authority for issuance. We have been informed, however, that the policy indeed represents the NYOUF’s current
administrative position regarding B2B obligations and will be applied to holders on a prospective basis.
Considerations
Businesses currently undergoing audits and preparing New York Voluntary Compliance Agreements (VCAs) will need
to consider the impact of the reversal of the NYOUF’s B2B deferral policy. Many companies that may not have been
reporting property under the prior B2B deferral scheme, or that completed audits or VCAs in the past, will now have
to determine whether they currently have or will have additional unclaimed property to report to the state that
previously qualied for deferral and therefore went unreported. We have learned that, to the extent that a credit
has been held back by a holder, based on the application of New York’s historic position (i.e., an ongoing relationship
with the business owner and no other communications between owner and holder on the specic credit item), then
the credit must be reported on the next New York abandoned property report. Depending upon a holder’s business
prole, this impact may not be immaterial. In addition, on a prospective basis, companies will need to carefully examine
their records to determine if they have the correct information for all businesses they engage with and, furthermore,
will need to implement and apply proper record-keeping policies to ensure compliance with the new policy.
4
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© ALSTON & BIRD LLP 2014
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Alston & Bird offers clients unparalleled experience dealing with issues involving state unclaimed property/escheat laws. Our five
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Please direct any questions to the following members of Alston & Bird’s Unclaimed Property Group:
John L. Coalson, Jr.
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Michael M. Giovannini
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