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Maine: Why let unused gift cards go to waste?

If the cards were purchased in Maine, the state is claiming $60 of their $100 combined value under Maine's unclaimed property law.
/ Source: The Associated Press

Remember those $50 gift cards from Target and J.C. Penney that Aunt Irene and Uncle Harry gave you two Christmases ago? The ones you slipped into your sock drawer and forgot?

If the cards were purchased in Maine, the state is claiming $60 of their $100 combined value under Maine's unclaimed property law.

Other states have used similar laws to tap the value of unused gift cards issued by in-state companies, but state Treasurer David Lemoine believes Maine is the first to seriously pursue national retailers. Keeping tabs on the cards shouldn't be difficult because retailers have sophisticated tracking systems to determine where they were sold and when they're redeemed, he said.

Maine officials say the issue is consumer rights and some of the billions of dollars in unused gift-card value whose ownership cannot be determined should revert to the public instead of retailers.

"There is a windfall of sizable proportions here that Maine law wants to return to the consumers, and that the national retailers want to hold on to," said Lemoine, who has sought — without success so far — to get large chains to pay up.

The retail industry says the Maine law is simply a money grab.

"States have no legitimate claim to that money whatsoever," said Craig Shearman of the National Retail Federation. "This is really a situation where states are seeing revenue shortfalls, and they're looking for ways to put their hands in somebody else's pocket to cover their tax situations."

Legions of shoppers have been turning to gift cards as a quick and easy solution to holiday gift-giving dilemmas. Sales of gift cards are expected to balloon from $83 billion last year to $97 billion this year, according to Tower Group, a research firm based in Needham, Mass.

"They're quick, they're convenient, and they have more cachet than just handing somebody a $20 bill," Shearman said.

Many cards, however, never get used.

Recipients lose them, forget about them or can't think of anything they wish to buy with them. In many cases, the card holder leaves a perpetual balance on the card by making a purchase that costs less than the card's value.

Nationally, unused value is expected to drop to $7.8 billion this year from $8 billion last year. TowerGroup said that reflects growing attention by consumers to the cards' terms and conditions.

Most gift cards issued by retailers have no expiration date, and Maine is among the states that prohibits expiration dates on the cards.

But after two years the cards are regarded as dormant in Maine, and a new law aimed at out-of-state companies says the state is entitled to 60 percent of the value.

After the law took effect this spring, Lemoine wrote to more than 40 major retailers with stores in Maine, including Best Buy, Home Depot and Williams Sonoma, demanding that they figure out how much they owe and send the state the money.

The companies either ignored Lemoine's letters or refused to pay, so Lemoine referred the matter to the state attorney general.

Maine is among more than 30 states that already apply unclaimed property laws to gift cards sold by in-state retailers, according to Lemoine.

Connecticut took a similar approach, but officials there said claims to the money never got far and the provision was eventually dropped.

The 60 percent share claimed by Maine isn't arbitrary. The state is letting retailers keep 40 percent, which equates roughly with the retail markup, while seeking to take the value of the product that never sold, Lemoine said.

"The remaining 60 percent is true windfall, and the Maine Legislature has taken the position that the windfall has been taken out of the consuming public and should be returned to the consuming public," he said.

So far, there's no word on whether the state intends to sue. "We're still looking at our options," said David Loughran, spokesman for the attorney general.

If Maine's claim should wind up in court, retailers are sure to argue that the state is running afoul of the U.S. Constitution by restricting interstate commerce.

Shearman said that if there's a need for laws governing dormant gift cards, they should come from the federal government. Otherwise, he says, confusion could run rampant.

"A consumer who lives in state A may buy a gift card across the line in state B, give it to a friend or relative who lives in state C, who spends it in state D in a store that's incorporated in state E," he said.

The refusal of national firms to pay up has left a hole in the state budget. The Legislature included $28.6 million from dormant gift cards in the budget for the two-year period that ends in mid-2009. Last month, a panel that projects state revenues said that figure won't be met.