Several states are claiming the right to collect the proceeds on unused gift cards to help offset their deficits. Gift cards are issued by credit card processing companies and private vendors to help business owners to increase their profits. Any unused gift cards have previously been reverted back to the business owner as profit. However, states such as New York and Maine have successfully petitioned the state governments for the right to collect this money.
Setting a Precedent
Most states have unclaimed property laws which provide for the value of abandoned property to revert to the states. For example, Sandra Norman-Eady, Chief Attorney in Connecticut states in her August 28, 2006 Summary of Unclaimed Property Law and Recent Amendments that property includes “money, money orders, checks, drafts, deposits, interests, stock dividends, bonds, and insurance proceeds. It does not include real estate or household furniture.” The states take possession of the unclaimed property.
The state of Maine was one of the first states to claim a right to collect the revenue on unused gift cards under their unclaimed property law. They solicit retailers for sixty percent of the value, and allow retailers to keep forty percent. However, many major retailers never respond to the state’s request for the money. Craig Shearman of the National Retail Federation says,”The states have no legitimate claim to that money whatsoever.”
Disagreements Cause Retaliation
Legislators in Maine enacted a law that made it legal for the state to claim sixty percent of the revenue and giving the retailers the other forty percent which represents the markup value on the product. Since retailers are not voluntarily turning the money over to the state, the attorney general is considering a lawsuit against retailers. Major retailers intend to argue that the state of Maine is restricting interstate commerce.
The states which have enacted legislation to collect gift cards as unused revenue usually exercise the right from two to five years after the gift card has been issued. States with pending legislation are asking for an expiration date on the gift cards which, at present, do not expire. Retailers are opposed to adding expiration dates as they want consumers to be able to use the cards at their convenience.
Erica Alini states in her June 30, 2009 Wall Street Journal article entitled Governments Grab Unused Gift Cards, that every year, consumers purchase approximately $65 billion in gift cards and some are never used. This has resulted in about $6.8 billion in unredeemed gift cards. Never expiring, many people like to purchase the cards and then use them at their convenience. Others like to give them as gifts on the holidays or for special occasions. However, some get lost or some never use them because consumers may not desire to shop at the store or may forget about them.
In conclusion, states that are looking for ways to offset their tax burdens may be targeting unused gift cards as a method to fulfill this need and retailers may lose money.
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