“Duty free” for how long? The Delaware cash grab faces a $400 million Supreme Court test.

A new session of the United States Supreme Court opened last week, and one of the first cases threatens Delaware’s status as the “home of duty-free shopping.”

The case, Delaware v. Pennsylvaniais a struggle to find out what happens to “unclaimed property” – all those billions that Americans and those who work or do business across the country constantly leave in unattended bank and business accounts, such as cards -gifts for closed restaurants or expired SEPTA tokens.

For most states, unclaimed property ranks with hunting licenses and other fees as a minor source of funding, well below income or sales taxes.

For Delaware, seizures of “unclaimed property” in recent years have funded 10% of the state budget.

But now that revenue generator is in jeopardy — and a lawsuit against Delaware’s exceptional seizures of other people’s property by 30 states could cost Delaware $400 million, including $19 million in Pennsylvania, according to Pennsylvania State Treasurer Stacy Garrity.

A court-mandated change in the distribution of seized funds among states could even force Delaware to find new revenue, such as a retail sales tax, a long-debated topic in the first state. It would reduce the state’s status as a hub for bargain shoppers and leave only New Hampshire, Montana, and Wyoming (and parts of Alaska) without this particular way to squeeze people in. (Delaware charges a gross receipts tax, a sales tax that buyers don’t see. Philadelphia charges both retail and taxes on gross receipts.)

In the case now before the Supreme Court, Pennsylvania and the other states say Delaware wrongly sucked up money left unused at MoneyGram, a large money transfer company favored by immigrant workers trying to support needs of their families back home.

According to the hairy old English legal theory of escheat, buried treasures or shipwrecked doubloons belong to the king; in the United States, forfeited funds are supposed to go (after a few years) to the state, which can use the money for public purposes until an owner or heir recovers it.

But what state? You would think the money would go to the states where its owners last lived. But many companies keep surprisingly poor records on this.

So much of that money went to Delaware, America’s corporate capital and the legal headquarters of most New York Stock Exchange-listed companies and a million more – more companies than the population. human state, and growing faster. (Although Delaware still has many more chickens than businesses or people).

Delaware’s main attraction for corporate America is its business-friendly chancery courts, with their appointed judges who quickly adjudicate business disputes using very clear precedents.

The threat of a chancery trial sometimes settles the matter. Twitter, for example, is a Delaware-registered company. When bad-tempered spaceship and electric car builder Elon Musk offered to buy the social media company, then tried to bluff his way out of the deal, Twitter filed its suit, not in court. Federal, but before the Chancellery.

After reviewing the facts and the law applied to the Chancery, the mere threat of spending October in a Wilmington Chancery courtroom getting beaten up by a gang of Delaware corporate law murderers was enough to convince the richest man in the world he better go ahead and buy Twitter after all.

Corporate franchise fees paid by Twitter and the million other Delaware-registered companies brought in Delaware $1.3 billion last year, nearly a quarter of state revenue — with the exemption of accounts receivable from these companies adding this additional 10%.

Seizing these funds is a state enterprise, but also highly capitalistic: States hire private contractors to find and take these funds, and they get to keep a big chunk. Delaware’s official escheator, Brenda Mayrack, worked for one of these contractors; now she watches over them.

A federal judge in Philadelphia once rapped about “Delaware’s wayward approach to unclaimed property,” as said Christopher Craig, chief attorney for Treasurer Garrity.

“It’s no big secret that much of Delaware’s activity is driven by budgetary needs,” Craig said. “With so many businesses in Delaware, this is becoming a boon to the state.”

Craig said the windfall should have been reduced by a 1970s federal law that assigns unclaimed warrants to the state where they were purchased. Delaware, in its defense, noted that MoneyGram payments are not called money orders. Pennsylvania and the other states say they are pretty close. Judge Pierre Leval, appointed by a lower federal court to review the case, agreed in a lengthy report.

“We tried to fix this problem,” but Delaware was unwilling to follow the law, Craig said.

US escheat laws date back to the Civil War, when they protected funds transferred between soldiers and their families. The law still says that if money lost, whether by infantry or migrant workers, cannot go to the person who sent it or was supposed to receive it, it can be used “by his community”, Craig said.

“Instead, it’s going to subsidize Delaware’s low-tax environment,” he added. “Why should a guy who bought a MoneyGram in Fayetteville, PA subsidize roads and teachers in Delaware?”

Delaware could still see significant escheat even if it loses the MoneyGram case. But after a series of losses in federal courts that took the case to the Supremes on appeal, collections are already trending lower.

Last year, Delaware collected $554 million in ‘unclaimed property’ but gave away about $105 million to people who proved it was their money, leaving a net $449 million. . This is less, compared to the budget, than in previous years.

And this year, the state’s Delaware Economic and Financial Advisory Council (DEFAC) finance council estimated in June that it should only collect $334 million in unclaimed property, a 23% drop from the previous year. ‘last year.

Mayrack said the state should get some credit for this apparent shortfall: She told me it was “due to an increase in the amount Delaware was able to return to homeowners.”

If these collections don’t recover – if the trend continues – how will Delaware plug the hole in its budget?

The escheator and other state officials wouldn’t talk about new taxes. In an email, Mayrack replied, “We look forward to the court’s decision.”

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