Gift certificates and cards have gotten extremely popular in recent years. That has prompted states to pay closer attention to laws governing gift certificates.
Gift certs are subject to fewer state laws than sweepstakes and skill contests, but one fact is crucial: Most states require that unused amounts on gift certificates sold to consumers eventually be given to the state.
A majority of states require sellers of gift certificates to “escheat” the remaining balance — to give the money to the state as unclaimed property. Although compliance with escheat laws for gift certificates has typically been fairly low, many states have started to look more closely at this potential source of revenue.
Most states have enacted some form of the Uniform Disposition of Unclaimed Property Act. Since most states have their own version, gift cert sellers must comply with each state’s requirements for certificates sold nationally or online.
Each state defines how long property must be unclaimed before it is considered abandoned; for gift certs, that averages three to seven years. For partially used certificates, most states begin the abandonment period after the date of last transaction or activity. (A few states start the clock when the certificate is issued.)
The majority of states require that the “holder” — the marketer who issued the gift cert — report an unused certificate and pay the face value to the state. Holders of partially used certificates must pay the state the remaining balance (although some states expect only 60-percent of face value). A few states allow marketers to deduct expenses, but in effect, states are entitled to whatever amount is held owing for the owner.
Some states exempt gift certificates from the reporting requirements of their Unclaimed Property Acts. Some states exempt gift certificates with expiration dates; others exempt gift certs without expiration dates. Several states exempt gift certificates below a certain value. (Wyoming and New Hampshire exempt gift certs valued under $100.)
Staking Claim
How do you know where to report this unclaimed property? Look first to the state of the certificate’s owner and then — if that address is unknown, or is in a state that doesn’t require escheatment — to the state of the holder. That makes it very important to set the right infrastructure for your gift certificate program. Marketers should track purchasers’ and recipients’ addresses, if possible, and dates of purchase and use.
This could present privacy concerns for consumers: There is clearly a conflict between consumer privacy and states’ interest in tracking transactions to collect money. The tracking process will be easier for gift certs sold (and redeemed) online; traditional marketers will have a trickier road as the relatively new trends in state enforcement and privacy protection develop simultaneously.
Another thorny issue is expiration dates. California banned expiration dates; later, several California residents filed a class-action lawsuit against J.C. Penney, Target, Barnes & Noble, and other retailers that sold gift certificates with expiration dates and service or dormancy charges. Now, most national retailers void expiration dates and service charges for Californians.
Hawaii and Massachusetts prohibit the distribution of gift certs with expiration dates less than two years from date of issuance; Massachusetts may lengthen this period to seven or 10 years. New Hampshire prohibits expiration dates on gift certificates worth less than $100. New York has a bill pending that would ban expiration dates.
Terri J. Seligman is a partner in the Advertising and Promotions Law Group at Loeb & Loeb, New York City. Reach her at [email protected].
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