Remove Credit Balances
From The Definition Of Unclaimed Property

Position: NCCBI believes the North Carolina General Assembly should clarify that credit balances resulting from business to business transactions occurring in the ordinary course of business are not subject to the North Carolina Escheats and Abandoned Property Act.

Explanation: North Carolina’s Escheats and Abandoned Property Act is designed to ensure that property abandoned or unclaimed by its rightful owner is turned over to the State, which then takes custody of the property to hold in perpetuity until the rightful owner is found.  Credit balances resulting from business to business transactions occurring in the ordinary course of business do not fall within this design, for several reasons.  First, treating such credits as unclaimed property is contrary to the notion that businesses do not abandon property in the ordinary course of business.   Because businesses have both the incentive and the wherewithal to collect on what is owed them, legitimate credit balances between businesses are inherently reconcilable by the parties to the transaction.  Standardized bookkeeping and financial reporting systems and the use of lawyers and accountants to monitor finances ensure that legitimate credits are paid or collected.  If a business fails to pursue a credit on another businesses’ books, it is likely the credit is either immaterial, was already paid, or never existed in the first place.

Second, the vast majority of credit balances between businesses are not “property” due to a creditor and therefore properly reportable as unclaimed property under the Act.   Typically, such credit balances are either the result of administrative errors (e.g., incorrect account postings, exchange rate differences, duplicate credit memos); or are not actually recoverable, such as the frequent practice of crediting a current customer’s account against a future purchase as a means of preserving that customer’s goodwill.  Such a credit is only a promised discount on a future purchase and does not represent a refund due the purchaser.  If the customer never purchases from the seller again, the credit balance should not be turned into cash and paid to the State, because it never represented actual property of the purchaser to begin with.

Finally, the State’s current interpretation of the Act requires businesses to either prove that each credit balance is the result of an error, or report and remit that amount to the State as unclaimed property.  Because the Act has no statute of limitations for unreported property, the current policy forces businesses to investigate credit balances back to 1982 (adoption date of the current Act) –- well beyond a reasonable time frame for maintaining business records.   As a result, the increased record-keeping burden and additional costs required to track individual credit balances between businesses that may incur millions of transactions yearly, far exceeds the benefits to society achieved by the small amount of such property likely to be actually escheatable.  Accordingly, the State’s current administrative policy unnecessarily increases the cost of doing business in North Carolina and reflects poorly on the State’s business climate.

Many states have either excluded credit balances from the definition of unclaimed property or have made it a practice of not requiring credit balances to be listed as unclaimed property.  We need to help our North Carolina businesses to operate more efficiently by not requiring the reporting of credit balances between commercial entities as unclaimed property.

Continue N.C. Budget Reform

Contingent Fee Audits

Defining "Doing Business" In North Carolina

Property Tax Exemptions For Construction In Progress And Product Samples

Machinery Tax And Sales Tax

Change The Net Economic Loss (Nel) Carryover

Remove Inventories From Franchise Tax Base

Sales Tax Discount

Single Sales Factor

Proposed Model Unclaimed Property Act
Allow an R&D Credit for the Actual Amount of N.C. Expenditure