Tuesday, August 31, 2010

New Jersey Grants Temporary Gift Card Repreive

As we noted earlier, New Jersey enacted legislation earlier this summer that explicitly applies the state unclaimed property laws to stored value cards (i.e., gift cards).  Under the new law, gift card issuers are required to report and remit balances for cards belonging to New Jersey residents that have been inactive for more than 2 years.  Of course, most gift card issuers do not obtain or retain address information for a gift card purchaser.  Consequently, most items were escheated, if at all, to the owner's state of incorporation. 

New Jersey sought to address this issue by requiring issuers to obtain name and address information for the gift card owner or purchaser.  The legislation was effective as of July 1, 2010, but explicitly made retroactive.  This provision was notable not only for its affect on unclaimed property administration, but because it also represented a change in the way most issuers do business.  Many (if not most) gift card issuers do not collect purchaser name and address information, and it is unclear how purchasers will react to being asked for this information at checkout.  Moreover, given the advent of "gift card malls" and similar methods, there are many instances where the gift card "issuer" (as defined in the Act) is not a party to the retail transaction. 

Perhaps in light of these concerns, the New Jersey Treasurer's Office recently announced that it is temporarily exempting stored value card issuers from the name and address requirements until October 1, 2010, "pending further review of current processes, technologies, and reporting practices and the subsequent development of specific industry guidance."

The announcement from the New Jersey Treasury can be found here.

Due Diligence Cutoff for Fall Reporting States

Most state unclaimed property laws require the holder to go through a "due diligence" process before remitting property to the state.  This obligation generally requires the holder to send a letter to the apparent owner's last known address stating that property of the owner is about to be reported and remitted to the state as unclaimed property.  Most states have a cutoff under which letters need not be sent, and some have special requirements for large-dollar accounts (e.g., certified mail).

States that follow one of the uniform unclaimed property acts generally require that the notice be sent no more than 120 days and no less than 60 days before filing the report.  In states with October 31 reporting and a 60 day letter requirement, that deadline for sending out due diligence notices is tomorrow, November 1. 

Fall states with a 60 day requirement include Alabama, Arkansas, DC, Georgia, Indiana, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, North Carolina, Tennessee, Virginia, and West Virgina.

Make sure to send those letters out!

Saturday, August 28, 2010

Unclaimed Property as State Revenue

According to an article in today's Chicago Sun Times, Illinois is holding over $1.4 billion in unclaimed property.  (That's right.  Billion.  With a B.)  Of course, with today's state budget deficits, that doesn't mean that Illinois has $1.4B sitting in the bank.  Usually, a specific amount is held aside to honor claims, while the rest is used as revenue.  Thus, as state budgets get more and more lean, there is a greater reliance on unclaimed property collection to make up the difference.  In Delaware, for example, unclaimed funds represents the third biggest contributor state revenue, after franchise and personal income taxes.  Similarly, in Michigan, the governor announced a proposed budget that seeks to close a $1.5 billion gap by, among other things, changing unclaimed property laws.

What this means for holders is that stringent enforcement of state unclaimed property laws is not going away.  If anything, enforcement will likely become more strict, as states seek to raise additional revenue without raising taxes.  Aggressive enforcement of unclaimed property laws allows the state to not only take custody of funds to use as general revenue, but to collect additional amounts in interest and penalties for noncompliance.  Accordingly, holders who take the view that unclaimed property compliance is a luxury in today's economy might want to consider that the state has an economic interest in enforcing these laws.

Friday, August 27, 2010

New Jersey goes after gift cards

Stored value cards (commonly referred to as "gift cards") have gone from a gift of last resort to a juggernaut of the retail industry.  These descendants of the paper gift certificates are now the number one holiday gift item, and sales of gift cards continue to increase this year.  Of course, as gift card sales have increased, governments have become more interested in regulating their use.  As has been widely reported, the Federal Credit CARD Act of 2009 imposed new requirements on gift card issuers relating to the assessment of dormancy fees (e.g., fees assessed for inactivity) and expiration dates.  Less reported has been the gradual expansion of state unclaimed property laws to inactive or unused gift card balances.

Earlier this summer, New Jersey joined the list of states whose unclaimed property laws expressly apply to gift cards.  New Jersey Assembly Bill 3002 (effectively July 1, 2010, but expressly retroactive) imposes a dormancy period of 2 years for gift cards.  The new law also requires gift card issuers to obtain the name and address of the card purchaser or owner.  Accordingly, for cards sold to New Jersey residents, the state will take custody of unclaimed gift card proceeds if there has been no activity on the card for two years.  Both the short two year dormancy period and the requirement to obtain purchaser name and address information are marked departures from most state laws.


Welcome to Escheatable - The Unclaimed Property Blog.

What is unclaimed property? 
Unclaimed property is - as the name suggests - intangible property (e.g., money, a financial account, or a right to payment) that has not been claimed, or has been abandoned, by its rightful owner.  Every state has unclaimed property (sometimes referred to as “abandoned property” or “escheat”) laws.  Pursuant to these laws, corporations, financial institutions, insurance companies, and other business entities are required to turnover unclaimed property to the state after a period of time defined by the law (anywhere from one to 15 years).  Examples of unclaimed property include uncashed checks, unclaimed dividends, stale accounts receivable credits, unused gift cards, unreturned security deposits and many others. Given the varied nature of items that can give rise to unclaimed property, any business that has employees, customers, vendors, or clients probably has unclaimed property to be reported and remitted to the states.

What is escheat?
Escheat referred to the common law doctrine that unclaimed land (e.g., property of a landowner who died without heirs) reverted to the Crown.  A similar concept is bona vacantia ("ownerless goods") pursuant to which ownerless personal property was claimed by the Crown.  The power to take custody of unclaimed lands and ownerless goods devolved to the states after the American Revolution.  Today's state unclaimed property laws represent a type of modern-day exercise of the common law power of bona vacantia.  Notwithstanding the fact that modern unclaimed property laws are a descendant of bona vacantia, many refer to unclaimed property laws as "escheat" laws.

What is Escheatable - The Blog?
This will be a space where we provide updates on recent developments in unclaimed property law and policy.  We plan to post news regarding new unclaimed property legislation, track recent developments, and provide commentary on related topics.