Holders of unclaimed property should take note that Illinois’ state budget bill, SB 9, enacted July 7, 2017, includes significant changes to Illinois’ unclaimed property law. Just days before it was enacted, the Illinois General Assembly amended SB 9 to include a modified version of the Uniform Law Commission’s 2016 Revised Uniform Unclaimed Property Act. Illinois’ new unclaimed property law will become effective January 1, 2018 and will repeal the state’s current unclaimed property law, the Uniform Disposition of Unclaimed Property Act. Many aspects of Illinois’ new unclaimed property law represent a drastic departure from current law and may have a negative and costly impact on holders of unclaimed property in Illinois. The following briefly highlights some of the new challenges holders of unclaimed property in Illinois will encounter if and when Illinois’ new unclaimed property law takes effect on January 1, 2018.
Elimination of the Business-to-Business Exemption
One of the most important substantive changes under Illinois’ new unclaimed property law will be the elimination of the business-to-business (“B2B”) exemption, which has been a long-standing, business-friendly exemption available in Illinois. The elimination of the B2B exemption under Illinois’ new unclaimed property law means that property due or owed between business entities, which is the result of transactions occurring in the normal and ordinary course of business, will become subject to an Illinois unclaimed property reporting obligation.
Stored Value Cards Subject to Unclaimed Property Law
For several years Illinois has exempted from escheat gift certificates or cards that do not expire and are not subject to fees. The new law continues to include a similar exemption, but “stored value cards” that do not meet the definition of a “gift card” are now subject to escheat. Merchandise credits and loyalty cards are generally exempt under the new law.
The potential negative impact on businesses due to changes such as the elimination of the B2B exemption and subjecting stored value cards to escheat is exacerbated by the fact that Illinois’ new unclaimed property law purports to be applicable retroactively, pursuant to a transitional provision. The transitional provision requires retroactive reporting for all property types that would have been presumed abandoned under the new law during the five years prior to January 1, 2018. Taking into account the dormancy periods (for example, five years from when a transaction giving rise to a property right occurred), this generally means that property presumed abandoned within the last ten years could be subject to escheatment, even if such property is currently exempt or was exempt when the transaction occurred.
Contractual Limitations Periods Disregarded
SB9 provides that the running of a contractual limitations period on claims between parties to an agreement will not prevent escheat of amounts otherwise owed under the agreement. In other words, even if the running of a contractual limitations period is valid against an owner’s right to claim property, it does not apply to the state; and thus, does not bar the state from claiming that the property is subject to escheat. This provision essentially allows the state to cherry-pick the terms of a private contract that create a right to funds, while ignoring terms of the very same contract that extinguish that right. This provision is arguably consistent with the elimination of the B2B exemption, in that both changes will often result in the state asserting rights beyond those of the purported owner of the property.
There are numerous other changes under Illinois’ new unclaimed property law, such as effectively eliminating a statute of limitations on the state’s ability to assess unless the specific item of property at issue was previously reported, and a reduction of dormancy periods for many types of property from five to three years. The ramifications of these changes will vary based on each company’s unique facts, but the challenges will be significant for all companies with material unclaimed property in Illinois.
The new unclaimed property provisions are already under scrutiny. Legislation has been introduced to roll back the changes, and the new unclaimed property law could be subject to constitutional challenges on a number of grounds, for example the enactment of unclaimed property amendments in a budget bill may violate the Illinois constitution’s single subject clause, and the transitional provision’s retroactive application may be a violation of holders due process rights. Companies with potential unclaimed property liability exposure in Illinois should consult their advisors regarding issues arising under Illinois’ new unclaimed property law, as well as to determine the most appropriate path forward.