In the first week of January, 2012, I wrote about sales tax and escheat risks regarding Groupon and other online vouchers on our firm's blog. The next day, the Third Circuit ruled on somewhat related transactions involving stored value cards or SVC's. Specifically, the Third Circuit held that the escheatment to New Jersey of abandoned amounts contained on SVC's is unconstitutional.
For purposes of background, section 46:30B, New Jersey Statutes, was amended and provided that SVC's were to escheat to the state after two years of inactivity. This amendment was challenged in New Jersey Retail Merchants Assoc. v. Sidamon-Eristoff and American Express Travel Related Services Co. v. Sidamon- Eristoff in New Jersey's Federal District Court in late 2010. The lower court ruled that the statute was unconstitutional in its retroactive application but allowed for prospective implementation. The case was appealed by both sides and the plaintiffs maintained that the statute violated the Contracts Clause, the Card Act, federal common law in Texas v. New Jersey, 379 U.S. 674 (1965), and Substantive Due Process. The Third Circuit held that the statute violated the Contracts Clause of the Constitution because it reduced or impaired the value of the contracts by the issuers of the SVC's and did provide reasonably for the lost value of the contacts. The Court also ruled that the statute was not preempted by the Card Act and the statute was inconsistent with Texas v. New Jersey. As for the final claim, the Court decided the plaintiff's did not violate Substantive Due Process because the data collection provision of the statute was rationally related to a legitimate state interest. A copy of the consolidated New Jersey appellate opinion may be downloaded in PDF format below.
Florida already has a very strong escheat law because section 717.102, Florida Statutes, provides a 5 year period in which unclaimed property escheats to the state. There is, however, an exemption for "gift certificates" provided in section 717.1045, Florida Statutes. Section 501.95, Florida Statutes, defines "gift certificate" and excludes both manufacturer and retailer coupons as well as SVCs. Therefore, under Florida law it appears that a Groupon type Voucher or an SVC has to be reported as unclaimed property because it falls outside of the definition of a "gift certificate." With guidance and case law sparse on the topic, this is still a topic worth following in the ever evolving area of voucher and SVC sales.
As for other jurisdictions that have enacted similar escheat provisions to increase revenue in these dire economic times, the Third Circuit holding presents potential arguments to challenge the Constitutionality of new escheat laws. This case also reminds us to challenge the trend of aggressive positions taken by the states in order to raise revenue.
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DOWNLOADABLE OPINION
AUTHORITY
§ 501.95, Florida Statutes
§ 717.102, Florida Statutes
§ 717.1045, Florida Statutes