As salon registers merrily ring up gift certificate sales this holiday season, salon owners welcome the sales boosts, which can top 50% in the most aggressive salons and day spas. This past spring, one salon owner confided in me that she loves all the holidays – Christmas, Hanukkah, Mother’s Day, and Valentine’s Day – because she sees her gross receipts jump anywhere from 5% to 25% (depending on the month).
This salon owner went on to explain that she loves gift certificate sales not only for the sales boosts, but also for the gift to her business of a new customer that she then has the opportunity to make a regular. Ready for a discussion of converting new clients to regulars, I was surprised by her next statement: “Of course, I don’t mind that some people never call for an appointment to use it, because that’s free money for me.”
While I was slightly taken aback by her unabashed enthusiasm, what she said made sense. After all, I’ve received many gift certificates over the years, and there’s been more than one that I’ve forgotten about, lost, or misplaced. Sure, I’ve experienced pangs of regret upon discovering a long-expired gift certificate, but I never thought of the money associated with it as my due. Boy, was I wrong.
Money for Nothing?
In fact, most consumers – and many small businesses – don’t know about the unclaimed property laws in each state that regulate unredeemed gift certificates. But according to the experts we asked, the dollar value of unredeemed gift certificates belongs to the recipient of the certificate. In all but a handful of states, gift certificates cannot be claimed as the income or property of the business that sold the certificate.
“If someone has put forward money in your name for goods or services, then legally the company selling the gift certificate is supposed to hold that property for you until you claim it,” explains Valerie Jundt, executive director for the National Association of Unclaimed Property Administrators (NAUPA).
Nor do expiration dates protect the business. First of all, Jundt notes, most expiration dates on gift certificates are not valid because each state regulates expiration dates (which generally allow property owners three to five years, but in some states as many as 10 years, to claim their property). Second, she adds, even after the legal expiration date has passed the unclaimed property laws of most states require businesses to hand over in cash the face value of the gift certificate to the state for safekeeping. The state, in turn, holds the “property” until the owner or the owner’s heirs or descendants claim it.
Since the 1950s, all of the states in this country have enacted some form of unclaimed property law, explains Anthony Andreoli, CPA. In 1995, the National Conference of Commissioners on uniform state laws developed the Uniform Property Act, which states were encouraged to adopt so that the laws would be more uniform.
“The only thing uniform about this act is that it’s not uniform in any state,” Andreoli jokes before summing up the law’s meaning. “The Uniform Property Act imposes a duty on the holder of unclaimed property to file notice with the state and to pay or deliver the property over to the state after a specified number of years, which generally ranges from one to 10 years depending on the type of item. The law also requires that if the holder has a name and address of the person entitled to the property then the holder is supposed to attempt to return the property of the owner.”
Salons are not unlike most retailers, though, in that they generally do not track information of gift certificate recipients. In these situations the money still goes to the state in which the business (or, for multi-location businesses, the headquarters) resides.
Not All States Count Gifts
That all said, Andreoli and Jundt know of a handful of states that exempt gift certificates in their unclaimed property acts. “Within the past few years a number of states have exempted gift certificates because of great pressure from retailers – Florida, New Jersey, New York, and Arkansas, for example,” Andreoli explains. A few other states exempt businesses from tracking gift certificates that fall below a certain threshold. For example, Andreoli cites Virginia, which excuses businesses from tracking gift certificates with a face value of less than $5. If your state is one that does require you to turn over the dollar value of unredeemed gift certificates after a certain period, know that in the meantime (usually a period of several years), you can use the money to your own benefit.
To understand the laws in your state and what procedures you have to follow, visit www.naupa.org. Under “Resources” you’ll find a link to a page containing contact information for the department administering unclaimed property in each state.
Examine the Business Angle
Both Andreoli and Jundt admit that while the laws exist and that salons not turning over the unclaimed property would be opening themselves to the possibility of penalties and interest, they doubt that the states would investigate smaller salons. “Chains with 10 or more salons or maybe franchises or more visible,” Andreoli says. “I would also recommend using 10% as a rule of thumb. If 10% or more of your business is from gift certificates then you have an issue from an accounting standpoint.”
Rather than focusing entirely on accounting or legal standpoints, however, salon owners need to look at the bigger business picture: Unredeemed gift certificates are lost business growth opportunities, not “free money.” Gather at least a name and a phone number for intended recipients and if they haven’t called for an appointment within three months, call them to book the appointment. If you get an address, mail an invitation to call and book the appointment. Over the long term that client (and any subsequent referrals he or she makes) will far outweigh ill-gotten, though admittedly easy, gains.
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