In a case consolidating two appeals, BBB Value Services, Inc. v. N.J. Treasurer,¹ the New Jersey Superior Court, Appellate Division (Court) held certain gift certificates issued by a home furnishings retailer (retailer) before July 1, 2010, that could not be redeemed for cash were not subject to escheat under the state's Uniform Unclaimed Property Act (UUPA).² Similar gift certificates issued later by the retailer's wholly owned subsidiary (subsidiary) were akin to "stored value cards" that were not yet due to be escheated nor to be escheated at face value when the subsidiary remitted them to the state.

Retailers face significant unclaimed property reporting challenges when examining retail-specific property types such as gift cards and merchandise credits. These retail-specific property types have long been a source of ambiguity, complexity and materiality. Transacting with consumers and customers yields many different sources of unclaimed property that need to be considered carefully, by state, and by the type of property such transactions actually represent. In this case, a closer look at merchandise credits issued as "certificates" to customers who returned products in retail stores with no accompanying receipt of purchase resulted in very favorable escheat results for the retailer and subsidiary.

Background

From 2004 through 2012, the retailer, Bed Bath and Beyond, reported and remitted the value of unredeemed certificates, which were issued to customers who returned items without a receipt, to the New Jersey Unclaimed Property Administration (NJUPA) as unclaimed property. The retailer subsequently sought a refund of the certificates' value, arguing they are the retailer's property and are not covered by the UUPA in existence at that time, as they are not redeemable for cash and are not "claims for the payment of money." The NJUPA argued that the certificates are "credit memoranda" by statute because they involve the "return of sold goods" and "not original sales."

Subsidiary issued the same types of certificates to customers with New Jersey addresses after a significant modification to the UUPA from July 1, 2010 through June 30, 2011. After classifying the certificates as "credit memoranda" and remitting the unclaimed certificates as unclaimed property in November 2014, the subsidiary requested a refund, arguing it classified the certificates incorrectly, reported the unredeemed value too soon and had remitted too much to the state. Specifically, the subsidiary argued that the certificates were "stored value cards," which are presumed to be abandoned after five years of inactivity. After abandonment, the presumptively abandoned amount is 60% of the card's value on the date it is abandoned. The NJUPA argued that the certificates were "credit memoranda," which are presumed to be abandoned after three years of inactivity and at face value.

UUPA framework

The original 1989 enactment of the UUPA included credit memos within the definition of intangible property, but left the term undefined. The Court, however, in its ruling in 1996 Determination,³ found the categories of intangible personal property that are expressly covered by UUPA are claims for the payment of money. Since the gift certificates in 1996 Determination could only be redeemed for services and merchandise, the holder of the certificates was not required to report them under the UUPA.

Under UUPA amendments that took effect July 1, 2010, the definition of "property" was expanded to include "stored value card," which was defined to include paper gift certificates.⁴ The 2010 amendments specifically applied to stored value cards that were outstanding on and after July 1, 2010, and included instruments issued before July 1, 2010. Additional UUPA amendments, which took effect June 29, 2012, extended the period of activity required before a stored value card was presumed to be abandoned to five years (previously, two years under the 2010 UUPA amendments).

Pre-law change unredeemed certificates were not property subject to UUPA reporting requirements

The Court, citing the 1996 Determination, held the retailer's unredeemed certificates, which were issued before the July 1, 2010 expansion of the UUPA to include stored value cards, were not claims for the payment of money and, therefore, were not "property" within the meaning of the UUPA in effect at that time. Even if the certificates were found to be "credit memoranda," the Court reasoned, 1996 Determination's reasoning that they were not claims for the payment of money would still apply. Since the certificates were not property under the UUPA, the Court did not address the retailer's constitutional claims. The Court also did not address the claim that certificates issued before July 1, 2010, are stored value cards, because a federal court order enjoins such considerations.⁵

Post-law change unredeemed certificates were not "credit memoranda" but rather "stored value cards"

Regarding the subsidiary's appeal, the Court found that, based on the plain meaning of the statute, the unredeemed certificates issued on or after July 1, 2010, were stored value cards. Like the certificates in this appeal, a stored value card is a "record that evidences a promise, made for monetary or other consideration." The subsidiary is the issuer and the customer is the owner who will receive merchandise, services, or cash in the value shown on the record, with a pre-funded value and the card's value reduced with each redemption. Stored value cards are presumptively abandoned after five years of inactivity,⁶ and the certificates in this case were issued between July 1, 2010 and June 30, 2011. The subsidiary reported the certificates in November 2014 and remitted their value to the NJUPA, but at that point there had not been five years of inactivity. Accordingly, the certificates should not have been presumed to be abandoned nor reported at face or issuance value.

Implications

This case provides insight into how New Jersey interprets unclaimed property provisions as applied to gift certificates after several amendments to the UUPA. This case, coupled with the California Superior Court decision in Bed Bath & Beyond v. Chiang,⁷ in which the California court ruled that the same property type examined in this New Jersey case was exempt from reporting under California's UUPA, presents potential opportunities for retailers to consider like-property types.

Retailers that issue merchandise credits under similar terms (i.e., not redeemable for cash and with no expiration date) should consider how such property is currently reported in their annual compliance efforts to understand if potential exemption or refund opportunities exist.

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ENDNOTES

¹ BBB Value Services, Inc. v. N.J. Treas., Nos. A-2973-14T3 and A-4880-14T3 (N.J. Super. Ct., App. Div., Sept. 21, 2017).

² N.J. Stat. Ann.Sections 46:30B-1 to -109.

³ In re the Nov. 8, 1996 Determination of State, Dept. of Treas., Unclaimed Property Office, 309 N.J. Super. 272, 276 (App. Div. 1998), aff'd o.b., 156 N.J. 599 (1999).

⁴ Specifically, stored value card was defined as "a record that evidences a promise, made for monetary or other consideration, by the issuer or seller of the record that the owner of the record will be provided, solely or a combination of, merchandise, services, or cash in the value shown in the record, which is pre-funded and the value of which is reduced upon each redemption."

⁵ Am. Express Travel Related Svcs. Co. v. Sidamon-Eristoff, 755 F. Supp. 2d 556, 615 (D.N.J. 2010), aff'd, 669 F. 3d 359 (3d Cir.), cert. denied, 568 U.S. 887 (2012). The injunction entered in November 2010 prohibits the NJUPA from "enforcing Chapter 25 retroactively against issuers of stored value cards with existing stored value card contracts that obligate the issuers to redeem the cards solely for merchandise or services."

⁶ N.J. Stat. Ann. Section 46:30B-42.1(a).

⁷ Bed Bath & Beyond Inc. v. Chiang, No. 37-2014-00012491-CU-MC-CTL (Cal. Super. Ct., San Diego Cnty., March 4, 2016).