US state income tax digest April 2025
The US state income tax digest highlights significant income and business tax legislation, regulatory adoptions, judicial decisions, and administrative guidance.
Michigan addresses unclaimed property statute of limitations
April 2025
In brief
What happened?
The Michigan Supreme Court on March 24, 2025, affirmed in part and vacated in part a Court of Appeals decision, finding that an unclaimed property examination initiated by the state treasurer qualified as a “proceeding” under the state's Uniform Unclaimed Property Act (UUPA) statute of limitations, but the act of commencing that examination did not toll the statute. The court determined that the statute of limitations period continues to run from when the holder’s duty to report or remit unclaimed property first arises.
Why is it relevant?
The decision limits the treasurer’s ability to enforce audit findings of property reportable beyond the statute of limitations period, even if the property was discovered during a timely audit. However, the court remanded the case for further proceedings to address whether a final “notice of examination determination” issued after an audit constitutes a new, enforceable duty with a new limitations period. Companies subject to multistate unclaimed property examinations should evaluate processes and procedures for tracking the statute of limitations period.
Actions to consider
Holders of unclaimed property should consider the following actions:
- Monitor examination timelines and the aging of potential unclaimed property liabilities during multi-year audits.
- Maintain documentation of when unclaimed property duties arose and when examinations or audit notices were received.
- Evaluate whether unclaimed property liabilities from multi-year audits may be time-barred.
- Track developments in proceedings remanded to the Court of Appeals on whether a post-audit duty restarts the statute of limitations.
In detail
Background
Michigan’s UUPA requires holders to report and remit unclaimed property abandoned for more than three years after it becomes payable or distributable. The statute of limitations bars the treasurer from initiating an “action or proceeding” more than 10 years (or five years for associations) after the holder’s duty arose.
In 2013, the treasurer initiated multistate unclaimed property examinations through a third-party audit firm relating to wages paid and accounts payable dating back to 2002 of a media and entertainment company and a global restaurant company. In 2021, the treasurer issued final notices of examination determination, asserting that both companies had failed to report and remit unclaimed property that should have been remitted within the 10 years prior to the 2013 notices of examination.
Both companies filed actions in Michigan circuit court, seeking declaratory and injunctive relief contending that enforcement was barred by the statute of limitations since the treasurer had not commenced an enforcement action in court. The circuit court held that the statute of limitations started to run at the time of the holder’s annual duty to report and remit unclaimed property, the examination was not an action or proceeding that tolls the statute, and the treasurer was barred from taking any enforcement action related to the disputed property since no action commenced within the applicable limitations period. On appeal, the Court of Appeals affirmed the trial court decisions.
After the treasurer appealed, the Michigan Supreme Court consolidated both decisions and remanded them to the Court of Appeals, while retaining jurisdiction, to determine whether an examination tolls the statute of limitations, assuming an examination is a proceeding, and whether the treasurer must file a lawsuit within the applicable time frame to avoid the lawsuit being time-barred.
The Court of Appeals issued a consolidated opinion, holding that the companies should not have been granted summary disposition and remanded it to the circuit court. The companies filed a motion for reconsideration, and the Court of Appeals forwarded the decision to the Supreme Court.
A proceeding includes an examination
The Michigan Supreme Court distinguished between an “action,” a lawsuit commenced in a court, and a “proceeding,” by concluding that “the word ‘proceeding’... encompasses a formal administrative proceeding or investigation... an examination and the processes and procedures it entails are parts of administrative proceedings.” Thus, the court found that a proceeding includes an examination.
Examinations do not toll the statute of limitations
Michigan statute provides for tolling of the statute of limitations if a holder or the treasurer files a legal action in court regarding compliance with or enforcement of the UUPA. However, the court rejected the treasurer’s argument that the statute of limitations should be tolled once an examination begins.
The court emphasized that tolling provisions must be explicitly stated in statute by commenting, “Had the Legislature intended the Treasurer’s commencement of a UUPA examination to toll the statute of limitations... it would have adopted language to effectuate that intent.”
The court found that because the commencement of an examination does not toll the statute of limitations, “the period of limitations as to a holder’s annual duty to report and remit property continues to run during an examination.”
Observation: The court noted that Delaware and North Dakota include tolling provisions in their unclaimed property statutes, in contrast to Michigan.
No lawsuit required to enforce an audit finding
The court agreed with the Court of Appeals that the UUPA does not require the treasurer to take further action after issuing a notice of examination determination. However, the court stated, “that does not necessarily mean that the Treasurer has an unlimited period to compel compliance.”
Court remands determination of post-audit legal duty
The court noted that the potential existence of a separate post-examination duty that could be enforced for an additional period remains an open question. The court found that the Court of Appeals decision failed to analyze how Michigan statute operates when a party refuses to voluntarily comply, and the treasurer is forced to commence a post-examination enforcement action.
The court remanded the decision to the Michigan Court of Appeals to determine whether a “new and distinct legal duty is created once a final notice of determination is issued,” and whether a new limitations period extends the state’s ability to enforce unclaimed property remittance beyond the expiration of the original duty. The court noted that, “It is necessary to identify the relevant legal duty that is implicated by post-examination enforcement efforts before determining whether the period of limitations has expired.”
Observation: Until the Michigan Court of Appeals determines whether a final determination notice creates a new enforceable duty that restarts the statute of limitations, unclaimed property holders should maintain documentation of compliance and limitation periods.
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