On June 29, New Jersey amended its unclaimed property statutes related to stored value cards.1 This amendment is the latest in a series of changes in the state's treatment of stored value cards over the past two years. There are several important components to the new version of the stored value card law that will affect both holders and owners of unclaimed property, and possibly taxpayers subject to the New Jersey Corporation Business Tax (CBT).

Stored Value Cards

A "stored value card" is a pre-funded record that may be redeemed for merchandise, services or cash and the value of which is reduced upon each redemption.2 Stored value cards include, but are not limited to, paper gift certificates, records that contain a microprocessor chip, magnetic stripe or other means of information storage, gift cards, electronic gift cards, rebate cards, stored value cards or certificates, store cards, and similar records or cards.3

Prior Treatment of Stored Value Cards

Effective July 1, 2010, New Jersey amended its Uniform Unclaimed Property Act to add, for the first time, "stored value cards," such as gift cards, as a type of property subject to escheat.4 This previous version of the law included two controversial provisions. First, issuers of stored value cards were required to obtain the name and address of the purchasers or owner of each stored value card issued or sold, and, at a minimum, maintain a record of the zip code of the owner or purchaser.5 Second, under a "place of purchase" provision that was held to be unconstitutional by the U.S. Court of Appeals for the Third Circuit in January 2012,6 if the stored value card issuer did not have the name and address of the card's purchaser or owner, the address would have been assumed to be the address of the New Jersey business where the stored value card was purchased or issued.7

Current Treatment of Stored Value Cards

The amended stored value card law no longer includes the unconstitutional "place of purchase" provision, but keeps the requirement to obtain the purchaser's information and has a number of other important requirements:

  • Stored value cards will be presumed abandoned after there has been no activity8 on the card for five years.9
    • This dormancy period is retroactive to all cards issued after July 1, 2010.
  • For many stored value cards, 60 percent of the amount remaining on an abandoned card will be subject to escheat.10
  • Beginning on July 1, 2016,11 an issuer of a stored value card must obtain the name and address of the purchaser or owner of the card issued or sold and must maintain, at a minimum, the zip code of the owner or purchaser.12
  • Beginning September 1, 2012, if a stored value card is redeemed and after redemption has a balance of less than $5, the owner can demand a cash refund of the balance.13
  • The funds associated with a stored value card sold on or after December 1, 2012 will never expire.14
    • However, the stored value card itself may contain an expiration date to the extent permitted by federal law.15
  • Stored value cards sold on or after December 1, 2012 generally may not include fees or charges.16
    • However, fees may continue to be imposed for issuance, activation, purchase, upon adding value or for replacement of lost, stolen or damaged stored value cards, provided that the fees are disclosed in writing prior to issuance or referenced on the stored value card or the stored value card packaging.17
    • The prohibition on fees does not apply to general purpose reloadable cards.18
  • The new law has a number of exemptions, such as cards related to charities and special promotions, and also to issuers who in the past year sold stored value cards with a face value of $ 250,000 or less.19
    • Also, the State Treasurer is authorized to exempt businesses for good cause.20 Factors that may be considered include the volume of stored value card transactions and the technology in place.21

Commentary

Unclaimed Property Effects

There has been controversy surrounding New Jersey's stored value card laws that were enacted in 2010. Because of extended litigation, the state's ability to implement the escheat of stored valued cards has been uncertain.22 Also, some issuers of stored value cards had contemplated leaving the state due to the data collection requirements that included maintaining a record of the purchaser's zip code.23 The legislation addresses these issues and is favorable to both issuers and purchasers of stored value cards. Provisions such as extending the dormancy period from two to five years, reducing the portion of the value of abandoned cards subject to escheat from 100 percent to 60 percent and postponing the issuer's data collection requirements should improve the business climate in New Jersey for stored value cards.

Potential CBT Implications

On June 29, the same day the unclaimed property legislation was enacted, the New Jersey Division of Taxation issued a letter ruling addressing the application of the CBT to the sourcing of income from a taxpayer's sales of stored value cards, gift cards and gift certificates to retailers.24 The taxpayer recognized income from, among other things, "breakage" payments resulting from dormant gift cards that were activated in New Jersey. However, while the taxpayer was able to track the redemptions of gift cards on a state-by-state basis, it was unable to track the activation of gift cards on a state-by-state basis. The Division concluded that the breakage income from dormant gift cards activated in New Jersey was to be sourced to New Jersey on a "market sourcing" approach, using the taxpayer's state-by-state redemption data as a proxy for the activation.

Generally, if a gift card issuer does not collect or maintain a record of the purchasers or owners of its cards, any unclaimed portion of the cards, or "breakage," is subject to the unclaimed property laws of the issuer's state of domicile.25 If the state of domicile explicitly exempts gift cards from escheat, the issuer can generally recognize breakage income for cards with an "unknown owner."

Beginning on July 1, 2016, an issuer will have to maintain the zip codes of the cards sold in New Jersey. Not only will this effectively force an issuer to track cards activated in New Jersey, but an issuer will have to escheat a portion of the value of these "known owner" cards to New Jersey. This should, however, decrease the amount of income subject to the CBT.

Footnotes

1 Ch. 14 (S.B. 1928), Laws 2012.

2 N.J. REV. STAT. § 46:30B-6(t).

3 Id.

4 Ch. 25 (A.B. 3002), Laws 2010, enacting N.J. REV. STAT. § 46:30B-42.1.

5 N.J. REV. STAT. § 46:30B-42.1(c) as in effect prior to June 29, 2012.

6 N.J. Retail Merchants Assoc. v. Sidamon-Eristoff, 669 F.3d 374 (3d Cir. 2012). A petition to review this decision has been filed. U.S. Supreme Court, Dkt. 12-108, petition for certiorari filed July 23, 2012.

7 N.J. REV. STAT. § 46:30B-42.1(c) as in effect prior to June 29, 2012.

8 "Stored value card activity" means the purchase or issuance of the stored value card, a transaction executed by the owner that increased or decreased the value of the stored value card, or communication by the owner of the stored value card with the issuer of the stored value card concerning the value of the balance remaining on the stored value card as evidenced by a contemporaneous record prepared by or on behalf of the issuer. N.J. REV. STAT. § 46:30B-42.1(k).

9 N.J. REV. STAT. § 46:30B-42.1(a). The previous version of the law used a two-year dormancy period.

10 N.J. REV. STAT. § 46:30B-42.1(b). However, for "general purpose reloadable cards," any amount remaining on an abandoned card will be subject to escheat. General purpose reloadable cards are stored value cards issued by banks, financial institutions or licensed money transmitters that can be used at ATMs or at multiple non-related merchants, are issued in a prepaid amount which may be increased by the cardholder, and are not marketed or labeled as a gift card. N.J. REV. STAT. § 46:30B-42.1(b), (k).

11 This is the first day of the 49th month following the date of enactment.

12 N.J. REV. STAT. § 46:30B-42.1(c).

13 N.J. REV. STAT. § 46:30B-42.1(h). This does not apply to non-reloadable stored value cards with an initial value of $5 or less, cards issued in lieu of a refund or return, or stored value cards that can be redeemed at multiple merchants that are not under common ownership or control.

14 N.J. REV. STAT. § 46:30B-42.1(i).

15 Federal law mandates that a gift certificate, store gift card, or general-use prepaid card may contain an expiration date if the expiration date is not earlier than five years after the date on which the gift certificate was issued, or the date on which card funds were last loaded to a store gift card or general-use prepaid card and the terms of expiration are clearly and conspicuously stated. Credit Card Accountability Responsibility and Disclosure Act of 2009, P.L. 111-24, § 401, 15 U.S.C. § 1693l-1(c).

16 N.J. REV. STAT. § 46:30B-42.1(j).

17 Id.

18 Id.

19 N.J. REV. STAT. § 46:30B-42.1(e).

20 N.J. REV. STAT. § 46:30B-42.1(f).

21 Id.

22 Statement of Senate Budget and Appropriations Committee for S.B. 1928, May 17, 2012.

23 Id.

24 Letter Ruling 2012-5-CBT, New Jersey Division of Taxation, Regulatory Services Branch, June 29, 2012.

25 Texas v. New Jersey, 379 U.S. 674, 682 (1965).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.