The Commonwealth of Virginia, like other states, is faced with unprecedented financial pressures, and state agencies are looking for money where they can find it. It shouldn’t come as a surprise that they are looking at car dealers, and one of the areas of government interest most overlooked by dealers is unclaimed property. Are you prepared for an audit in which the state looks for and requires you to pay into state coffers the unclaimed property you may hold for others?
Virginia enacted the Unclaimed Property Act as a means of reuniting an owner with his or her unclaimed property. Unclaimed property is any financial asset that has been left inactive. Common examples are savings and checking accounts, un-cashed bank checks, certificates of deposit, and safe deposit box contents. By law, most property becomes unclaimed and is presumed abandoned when there is no owner contact with the holder for a specified period of time (typically three to five years) which varies by type of property. The law requires notice to the owner of abandoned property, and the property belongs to the state if it is not claimed.
Dealers who do not view the Unclaimed Property Act as applicable to them should take this opportunity to learn more about it. Funds resulting from uncashed checks, unclaimed refunds and overpayments, etc., are not simply “pickup money” that can be swept into income at the end of the year.
Any right to property of someone the dealership deals with – usually a customer or employee – that is not claimed is in fact property subject to the Unclaimed Property Act. There are numerous categories of potential unclaimed property that any dealership controller could easily identify. Here are a few of the most obvious:
- Overpayments of official fees not returned to customers;
- Overpayments of lien payoffs not returned to customers;
- Refund checks not cashed by customers;
- Employee salary or bonus checks not cashed by former employees;
- Unreimbursed deposits for undelivered vehicles or parts to which the dealer does not have a legal claim under its sale documents; and
- Uninstalled equipment or unperformed services due to a vehicle purchaser.
State law requires a regular report to the state, an attempt to locate the owner, and payment to the state if the property is unclaimed.
Many dealers believe that they have the right to deposits for vehicles and parts when a customer does not finalize the purchase. However, that is only the case where the order or sale document clearly permits the dealer to keep the deposit as its property because of the customer’s default.
Many dealers also view uninstalled equipment or unperformed services due to a vehicle purchaser as company property if not claimed by the buyer. A state auditor will disagree unless dealership documentation is drafted carefully. A dealership that wants to avoid treating these as unclaimed property should consult with its legal advisor to be sure that the paperwork adequately describes the dealer’s rights in the transactions. Generally, the “we owe” given to the customer should make clear that the property does not belong to the customer unless claimed. The form should give notice of that with language such as: “Buyer shall have no right to the equipment or work under this document if Buyer does not return the vehicle for service within thirty days. If not claimed, the equipment and/or services shall remain the property of the dealer.”