Barganier and Associates is constantly monitoring both legislation and litigation involving unclaimed property and other topics that may affect clients’ compliance positions. In that effort, we have identified a lawsuit in the State of Washington that may be of interest to you. Costco Wholesale Corporation v. Washington State Department of Revenue and Suzan Delbene, CAFN 11-2-08830-8, was filed in King County Superior Court, Seattle, Washington, on March 4, 2011.
Washington State assessed Costco over $3.2 million for unclaimed rebates, interest and penalties, which Costco paid under protest and seeks a refund through the lawsuit. Costco argues in its complaint that Washington wrongfully assessed the amounts because Costco was not the holder of the rebates or the rebate program, “did not issue the checks, and it did not receive the proceeds of the checks that remained uncashed.” Costco argues that it was only a facilitator or middle man between the manufacturer and the end consumer in the rebate process. Who is liable to unclaimed property authorities is an on-going point of contention for many retailers who used third-party rebate fulfillment houses which maintained the slippage on uncashed rebate checks.
In addition to the rebates at issue, this case also highlights the dangers of not cooperating with a state unclaimed property audit. In this instance, Costco refused to turn over documents that may have mitigated the risk of a costly assessment. In turn, the state audit authorities had to turn to third-party sources, most notably the rebate fulfillment vendors, to determine the amount of unclaimed property. Due to Costco’s failure to cooperate, they were not given the chance to review, rebut or otherwise mitigate the sums that the auditors determined were unclaimed property. This case serves as a reminder that unclaimed property audits can be as costly as other state or federal tax audits and should be taken just as seriously.
As this lawsuit was filed only last Friday, the state has not yet had a chance to respond to the allegations made by Costco. Barganier and Associates, LLC will continue to monitor this litigation and update you as events unfold. If you would like to discuss how this affects your company or compliance position, please do not hesitate to contact me or Patricia Barganier.
Documents from Costco v. Washington: