Texas House Bill 3596
By Gary Joseph – Senior Manager, Consulting & Advisory Services Team Heather Gabell – Director, Compliance
December 19, 2019
December 19, 2019
Turbulent… Volatile… Ever-changing…
These are a few of the terms by which the current unclaimed property environment can be described. State unclaimed property laws are continuously evolving to keep up with industry changes. Unfortunately, holders are experiencing operational and structural congruency conflicts, as these changes may not take into consideration holders’ unique industry challenges.
On June 10, 2019, Texas House Bill 3598 was enacted. This bill effectively changes the way holders are required to report unclaimed property to the State, as well as expands the Texas Comptroller’s (“TX CPA”) legal options of enforcement. The major changes included in the bill include:
- Combined (“Consolidated”) Reporting
- Continuing Reporting
- Record Retention
The holder community, advocates, and other parties have all expressed concern with the new requirements, for a number of reasons.
The State now requires that holders file a combined, or consolidated, report for all affiliated entities under the parent company’s umbrella. The law defines an affiliated group as multiple entities of which a controlling ownership interest is possessed by a common entity. An entity is considered to have a controlling ownership interest if its equity or voting interest in a company, directly or indirectly, meets or exceeds 50%.
While many holders currently file under one entity, the State is now proactively requiring consolidated reporting. Holders not currently filing under one entity will be required to consolidate their filing process, and report under one common entity which may require a change in internal procedure. It will also require an increase of interfacing between various departments or subsidiaries in an organization.
One industry that will experience a significant paradigm shift in regard to TX HB 3598 is the oil and gas industry. Due to structural and operational decentralization, many entities segregate the accounts payable, receivables and payroll divisions internally from the revenue and land departments. This often results in the filing of two or more separate reports to the State(s). While there may be a benefit in consolidating the reports, the interaction between the departments will need to increase in order to comply with the State’s filing requirement.
Continuing Reporting & Record Retention
TX HB 3598 now requires that holders file reports in each successive year after meeting the initial requirement to file. In the event a holder does not have property reportable to the State, a negative report must be filed with TX CPA in order to comply with Texas unclaimed property law. In prior years, there was not a requirement to file a negative report to the State.
The bill also amends the record retention provision, to now require holders to retain records for ten (“10”) years from the LATER OF:
- The date of which the property becomes reportable; or
- The date the report is filed.
The provision applies regardless of whether the property was included in the aggregate.
Enforcement: Subpoena Power
Per TX HB 3598, the state may obtain the assistance of the Texas Attorney General’s Office (“TX OGA”), banking commissioners or any other State agency or political subdivision of the state to enforce the unclaimed property law. Additionally, TX CPA is now authorized to issue subpoenas to compel cooperation from the holder. In the event the holder fails to comply with the subpoena, TX OGA can then be engaged to enforce the subpoena through legal suit.
Other states, such as Tennessee, have adopted similar provisions into their unclaimed property enforcement toolkits. As states continue to adopt various components of the 2016 Revised Uniform Unclaimed Property Act, or RUUPA, we foresee additional States amending their statute to incorporate this provision as it expressly conveys legal means for the state to compel cooperation, as well as to evaluate and enforce compliance.
Holders and advocates are working with the TX Unclaimed Property Administrator to further clarify expectations with regard to TX HB 3598. As the Spring/Summer Filing Date quickly approaches, we are standing by for new administrative guidance from the State.