Article

An overview of unclaimed property for restaurants

Oct. 17, 2023 · Authored by Matthew Chenowth

Unclaimed property is generally defined as any intangible property that is held, issued, or owing in the ordinary course of business and has remained unclaimed by the apparent owner for a specified period of time after it became payable or issued. Any time a restaurant or franchise generates a payable or a liability, that transaction may become unclaimed property if it remains uncashed, unredeemed or unclaimed by the owner.

Unclaimed property basics

Every U.S. state and territory has active unclaimed property statutes, and because unclaimed property is not a tax, there is no “nexus” test to determine where a restaurant may have a potential reporting responsibility. In order to assess which state’s unclaimed property laws apply, a company would have to look to the priority rules established by the Supreme Court in 1965:

• First priority rule: Generally speaking, unclaimed property is reportable to the state of the owner’s last known address as indicated on the issuer’s books and records.
• Second priority rule: When no last known address exists, property is generally reportable to the state of corporate domicile (i.e., state of incorporation/formation).

Therefore, when a company does not have address information, such as with some gift card programs, any potential unclaimed property may be reportable to its state of formation pursuant to the second priority rule.

Key unclaimed property considerations for restaurants

Regardless of industry, the most common types of unclaimed property consist of the “big three” property types: uncashed payroll checks, uncashed vendor payments and accounts receivable net credit balances. While companies in the restaurant industry can generate all of these, the two main areas comprising a restaurant’s reporting responsibility consists of uncashed payroll checks and unredeemed gift certificate and gift card balances.

Uncashed payroll checks

Small, uncashed payroll checks are part of day-to-day business with most restaurants. Unfortunately, with a few exceptions, no matter how small the amount, an outstanding payroll liability is likely to be reportable as unclaimed property once it becomes dormant, which is typically one year from the date issued in most states. While there are a few states that have exemptions for wages for $50 or less, Kentucky, Michigan and Ohio, most do not and require wages as small as $0.01 to be reported as unclaimed property. This can also include returned direct deposits. The key to managing a restaurant’s reporting responsibility, specific to payroll transactions, is to adopt proactive and regular communication with employees (current and former) about uncashed or returned payroll disbursements.