TRENTON — New Jersey has petitioned the U.S. Supreme Court to hear a case that could help the government claim at least $15 million a year in unspent gift card revenue from retailers to help balance the state budget.
The high court is expected to decide within weeks whether to accept the case that could rewrite the law on unclaimed property by clarifying which state has priority over forgotten gift cards — and whether it matters where the card was bought.
The dispute between New Jersey and retailers around the country arose in 2010 when the state expanded its abandoned property law to include gift cards, a revenue source projected to generate $4.34 billion in sales statewide in this fiscal year. Cash-strapped New Jersey and other states, including Maine, New York and Texas, see a potential jackpot in laying claim to even a fraction of the card balances that will be forgotten — $114 million will go unspent in New Jersey alone this year, according to legislative estimates.
Trade groups led by the New Jersey Retail Merchants Association sued to stop what spokesman John Holub described as a government “money grab.”
“Previous Supreme Court decisions laid down a clear and simple set of rules governing unclaimed property. Unfortunately, for the last two years New Jersey has been trying to rewrite those rules for the only purpose of generating revenue for the state budget,” said Holub. “After two courts already ruled against the state, we are quite disappointed they continue to pursue this anti-business, anti-consumer initiative.”
The Treasury Department didn’t return an email message for comment Friday.
Federal unclaimed property law assigns priority to the state in which the buyer lives. But, if there are no records on the buyer, which is almost always the case with gift card purchases, priority is then given to the seller’s state of incorporation, meaning untold millions for the stores that sell the cards.
But not all states claim abandoned gift cards as revenue, so New Jersey has moved to claim unspent balances on gift cards that are bought within the state, go unused for five years and won’t be claimed by another state.
New Jersey retailers wouldn’t be obligated to honor gift cards more than 5 years old if the law stands as enacted, but Holub said almost all would do so rather than alienate customers. The onus would then fall on the retailer to seek refunds for card balances already forfeited to the state.
New Jersey originally booked about $50 million in annual revenue from its gift-card claims, but the lawsuit has delayed and shrunk the anticipated profits. For example, the state originally planned to claim unredeemed balances after two years, but amended the law in June to allow five years before a gift card is considered abandoned.
The courts also delayed a key provision, but not before major gift card distributors announced plans to pull their business from the state because of difficulty complying with the new requirements.
That provision requires sellers to obtain and keep a record of the ZIP code of every customer who buys a gift card. But because cards are sold at convenience store kiosks and supermarkets, among other places, distributors said they could not guarantee that all retailers could or would comply.
Blackhawk Network and InComm made separate announcements this spring that they would quit doing business in New Jersey unless the law was reversed. American Express, which also sued, was the first to remove its gift cards from New Jersey stores in April.
An amendment passed in June over the objection of the Retail Merchants Association delayed ZIP code collections for four years, but did not eliminate the provision.
California-based Blackhawk supplies 175 gift card brands to 1,300 New Jersey retailers, primarily groceries.
Atlanta-based InComm supplies 2,500 retail locations with gift cards for such brands as Visa, MasterCard, iTunes, Macy’s and Subway.