6 keys to understanding gift card escheatment

While many types of property go unclaimed, one type of unclaimed property that often creates confusion involves the escheatment of gift cards and other similar stored value instruments (together “gift cards”). To assist you in taking control of your company’s unclaimed property gift card obligations, outlined below are six keys to mastering gift card escheatment:

1. Understand priority rules

Determine which state’s gift card escheatment laws apply.

• First priority rule: Generally speaking, unclaimed property is reportable to the state of the owner’s last known address as indicated on the holder’s books and records.
• Second priority rule: When no last known address exists, property is generally reportable to the state of corporate domicile (e.g., state of incorporation/formation).

Most holders do not track address information for their gift card program, resulting in unclaimed balances defaulting to their state of corporate domicile, per the second priority rule.

2. Learn the laws

Once you know which states take priority, the next step is to gain a proper understanding of the corresponding state laws and how they apply to your company. When dealing with multiple states, this analysis can be complex given the widely varying sets of gift card rules across states. Although it would be difficult to cover all states in one post, some common themes include:

• Narrow definitions: Narrow definitions often exist as to what states consider a “gift card” versus other similar instruments (e.g., “gift certificate,” “stored value card,” etc.) and the escheatment rules may differ depending on the state and how they define certain property classes. Some common variables that are considered include:

1. Expiration dates
2. Exchange for cash
3. Administrative fee deductions
4. Ability to replenish
5. Storage medium
6. Ability to use unaffiliated retailers

• Allowed exemptions: Many states exempt gift cards from escheatment if they meet certain defined criteria, some examples of which are outlined above. It is important to note that such exemptions only apply to the reporting of unclaimed property and the amounts will generally still be owed to the apparent owner.