This blog was last updated on December 12, 2024
Although hard to believe, unclaimed property obligations impact ALL industries, including wineries and other wine clubs. While most companies typically only associate unclaimed property with outstanding checks, including accounts payable and payroll, there are other exposures for wineries and wine clubs to consider. Understanding these risks and the requirements for property reporting is critical for staying compliant and avoiding costly penalties.
Unclaimed Property Types for Wineries and Wine Clubs
While organizations should still consider outstanding checks, another significant exposure for wineries and wine clubs could result from products sold to customers that are never received. This includes:
- Will-call purchases that do not get picked up by the customer
- Undeliverable products purchased online
- Unredeemed gift cards and unused balances, which organizations should examine on a state-by-state basis. While many states exempt gift cards that do not contain expiration dates or service charges/inactivity fees, about half of the states require at least a portion of the outstanding balances to be reported after three or five years of inactivity on the card.If names and addresses are not available for gift cards, the outstanding balances would be due to the company’s state of incorporation. If incorporated in Delaware, Delaware allows companies to retain the profit earned on the sale of the gift card, calculated according to Title 12 Unclaimed Property Delaware Administrative Code, section 2.4.2, with the remaining balance due to be reported as unclaimed property after five years of inactivity on the card.
As a first rule of thumb, if a customer purchases a product that cannot be delivered or the customer fails to pick it up, the funds should be returned directly, ideally in the same form of payment. Alternatively, wineries could use undistributed funds to offset purchases made by the same customer at a future date.
Failure to utilize either of these options to handle the outstanding obligation to the customer will result in accounts receivable credits on a company’s ledger. With this in mind, wineries and other wine clubs should analyze balances due to others aged three to five years to identify properties considered reportable to the states as unclaimed property.
Understanding Dormancy Periods and Reporting Requirements
Dormancy periods are a key component of unclaimed property compliance, as they dictate the length of time before unclaimed funds or assets are considered abandoned property and therefore subject to state reporting requirements. Each state establishes its own dormancy periods, which typically range from three to five years. Once this period expires, businesses are required to report unclaimed property to the appropriate state authority.
During the dormancy period, businesses are expected to attempt to reconcile outstanding balances with property owners. Organizations should understand their obligation to conduct state-required due diligence mailings, which involves sending letters to property owners notifying them of the property that is due to them and giving them an opportunity to claim it before it is reported to the states. Specific requirements regarding reportable populations, timelines, due diligence requirements and reporting methodologies vary widely from state to state.
To minimize unclaimed property exposure, best practice for wineries and other wine clubs is to notify customers of balances or unreceived products within 90 to 180 days from the balance creation. Outreach efforts conducted within this period have a greater chance of customers responding compared to those conducted three to five years after the fact.
Ignoring or incorrectly reporting property can have serious consequences. Businesses that fail to comply with state requirements may face audits, interest and penalties on overdue filings. In severe cases, non-compliance disputes have even escalated to the Supreme Court, highlighting the importance of compliance with unclaimed property laws.
Want to learn more?
Whether it’s understanding dormancy periods and property types, or navigating state-by-state requirements, Sovos is here to help. For a deeper dive, watch our free on-demand webinar, What Beverage Alcohol Companies Need to Know about Unclaimed Property.
Contact us to learn more about the services Sovos provides to help your organization achieve and stay in compliance with the ever-changing world of unclaimed property.
