Birthdays, graduations, anniversaries, and the holiday season at large are all occasions where gift cards and gift certificates become extremely popular present choices. While gift cards have appealing utility for the issuer, they may create abandoned property exposure for the issuer if they are not aware of the varying state laws regarding gift cards and unclaimed property.
Ideally, every penny of gift cards is used, and there are no remaining balances. However, in reality, gift cards are often misplaced, partially used, or forgotten about entirely. What happens to these funds? Are they escheated to the state? What if there’s a partial balance? Let’s explore when and where gift cards are considered unclaimed property:
What Do Unclaimed Property Laws Say About Gift Cards?
To determine whether a gift card must be reported as unclaimed property, we must first understand state escheatment priority rules. Typically, the unclaimed property laws of the state of the gift card owner’s last known address take priority. However, most companies don’t track data on who purchased gift cards to understand where the gift card should be escheated. As a result, the escheatment of the gift card typically defaults to the state of incorporation of the holder — the gift card issuer.
Gift card escheatment can be broken down into three main buckets:
- Fully exempt: Many states exempt gift certificates from unclaimed property reporting altogether. Some exempt gift cards on the condition they don’t expire or entitle the issuer to any maintenance fees due to inactivity.
- Partially reportable: Some states require that a percentage of the remaining gift card balance be escheated.
- Fully reportable: Other states require any balance on the card, full or partial, to be escheated after a certain period of inactivity.
There is no uniform rule on when gift cards must be escheated; a state-by-state analysis must be performed to ascertain the proper holding period. For states that require gift card escheatment, dormancy periods typically range from two to five years.
Dunbar: Safeguarding You Against Unredeemed Gift Card Liabilities
Maintaining compliance with unclaimed property laws — whether for gift cards or any other type of property that may be reportable to the states — means monitoring the dynamic legislative landscape for updates and ensuring any system changes are executed in a timely manner.
At the end of the day, it’s crucial to create a review process and understand the rules of your company’s state of incorporation. This allows the issuer to properly track balances and prevent future unclaimed property exposure. For more information about our unclaimed property reporting services, get in touch with our specialists today.
