Gift Cards? The Tax Man Wants Yours

By Lisa Smith | July 08, 2009 AAA
Gift Cards? The Tax Man Wants Yours

According to statistics from Tower Group, retailers sell some $65 billion worth of gift cards every year. More than 10% of those cards are never redeemed. Sometimes the cards are lost, other times they are forgotten, and sometimes, they are just plain unwanted gifts. But what happens to the $6.8 billion collective balance on the cards? Because many states have passed laws that prohibit expiration dates on gift cards, it seems logical that the balance stays put. (For budget-friendly shopping tips, see Short On Shopping Cash? Use A Layaway Plan.)

Logical, perhaps, but that doesn't make it true. You'll be surprised to learn where these balances really go.
States Make a Grab for the Cash
With budget crises hitting nearly every state in the nation, the number of states seeking to get their hands on the unused balances on gift cards as unclaimed property is on the rise. Unclaimed property, of course, can be confiscated by the state. In fact, more than half of the country's state governments already make a grab for the cash once gift cards reach a certain age. According to the National Association of Convenience Stores, a retail trade association, 25 states currently claim unused gift cards within five years.

It's no wonder states are pursuing this source of revenue; according to a June 30 article in the Wall Street Journal, New York state collected $9.6 million in 2008 from unredeemed gift cards, although this made up only a small portion of the $691 million the state claimed from other abandoned property it confiscated, including uncashed payroll checks and forgotten bank accounts.

Consumers often assume that when states pass laws to restrict retailers' ability to put expirations dates on gift cards, consumers often assume the states are looking out for the interests of gift card buyers and recipients. The concept seems sound, but in reality, Maine and other states have passed laws that make unused gift cards dormant after a certain period of time, even if they remain unexpired. (Retailers often claim to work in consumers' best interest by offering warranties, which generally don't benefit shoppers. Find out more in Extended Warranties: Should You Take The Bait?)

Dormant cards become unclaimed property, which can be confiscated (whether wholly or in part) by the state. A 60/40 split between the state and the retailer is common, but other states claim most or all of the unused balance. Maine, for example, claims the lion's share of the value, giving the minority share to the retailer. Alaska, on the other hand, lays claim to 100% of the face value of the card. Cards that have expiration dates are subject to similar laws.

Your State
From Alaska to New York, state governments often get the goods when gift cards go unused. To find out if this happens in your state, check out the National Conference of State Legislatures website.

What's the best defense against losing the value on your card? Spend it! If that's not in your plans, trade it away online, resell it, or regift it. And if you find an old, forgotten gift card in a drawer somewhere remember that even if it's not expired, you may never be able to spend it.

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