Why Delaware Gets An "F" from Industry on Unclaimed Property Regulation
Despite its small size (49th out of 50 states) and relatively modest population (45th out of 50), Delaware has always played an important role in the commercial and governmental history of the United States: Delaware was the “First State” — that is, the first state to ratify the Constitution. Delaware also was home to the first scheduled steam railroad service, and (according to some references) the state where the U.S. flag was flown for the first time (at the Battle of Cooch’s Bridge, near Newark, Delaware on September 3, 1777).
However, probably nowhere more than in the corporate world has Delaware played an important role in the business of this country, especially as a corporate domicile. For example, despite having a population of approximately 917,000 people, Delaware is home to nearly a million companies. The reasons for Delaware’s position as the corporate domicile of choice are varied, but include a well-developed business law, an established and respected court system well-versed in corporate law, and a business-friendly reputation.
Delaware can likewise be considered “The First State” with regard to unclaimed property reporting and remittance. As we’ve discussed earlier, under the rules established by the Supreme Court, a holder’s state of incorporation is the state with priority to take possession of owner-unknown, address unknown, and foreign owned unclaimed property. So, for the same million companies, Delaware is an important state for unclaimed property compliance. In this area, however, Delaware’s reputation is far from sterling. In a recent editorial published by Investors Business Daily, Douglas Lindholm, the president and Executive Director of the Council on State Taxation outlines some of the reasons why Delaware’s unclaimed property administration is not “business friendly” and he explains why COST gives Delaware an “F” in unclaimed property regulation.
In a few short paragraphs, the editorial provides an overview of the most frequent holder complaints: the state’s overly aggressive (and legislatively shaky) audit procedures and techniques, its questionable liability “estimation” techniques, and most importantly, the fact that in Delaware, these “consumer protection” laws are really nothing more than a revenue generator for the state. (As the editorial points out, of the $320 million collected last year by Delaware’s unclaimed property regulators, less than $20 million was paid to owners). While COST is obviously an interest group whose first priority is to advocate for the interests of its members, none of these critiques should come as a surprise to unclaimed property professionals or corporate holders. Indeed, it was probably these concerns (among others) that led to Delaware adopting a (comparatively) holder-friendly, but limited time, VDA Program.
While the VDA was a positive start, the editorial argues, a variety of other fixes are necessary before Delaware can reclaim its historical reputation as a business friendly environment. It is well worth a read.