Habif, Arogeti & Wynne, LLP’s Retail, Franchising and Hospitality group
Gift cards and certificates are an industry standard when it comes to restaurants. According to Habif, Arogeti & Wynne, LLP’s 2013 Food and Beverage Survey, 94 percent of restaurants sell gift cards and certificates to customers. It can be a big revenue boost for you, especially during the holiday season as customers purchase presents for family and friends. But what happens when those gift cards go unclaimed? How do you, a restaurant owner, account for those unused gift cards?
The unredeemed value of the gift cards, called “breakage,” can be a boon to restaurants. It is pure profit to the restaurant, increasing its cash flow and its bottom line. Estimates of breakage run from 10 percent to as high as 19 percent, making gift card breakage an important source of revenue for restaurants.
But there is a dark side to unused gift cards, and it comes in the form of unclaimed property liability. Many states, including Georgia, consider the unused amount of gift cards to be unclaimed property and thus restaurants with unclaimed gift cards have unclaimed property liability to the state. Typically, these states consider property to be abandoned after the expiration of a certain period of time, known as the dormancy period. After that period is up, the holder of the unclaimed property liability is required to report and remit the property to the appropriate state. For restaurants, that means that you may be required to hand over some of those profits if your state does not exempt gift cards from unclaimed property liability.
Surprisingly, many restaurateurs are unaware that unclaimed gift cards and certificates present such an accounting issue. According to HA&W’s Food and Beverage Survey, two out of three restaurants experience unclaimed gift cards and certificates. Yet over half of restaurateurs surveyed take no action for those gift cards, while another 22 percent are not even aware action is needed.
Precisely what action needs to be taken can be difficult to determine, as state rules vary widely. States have begun intensifying their unclaimed property laws as a way of raising additional revenue, and based on where you’re selling gift cards, you may be liable to different states.
Even if you’re not subject to unclaimed property liability, you may still be accounting for your unclaimed gift cards incorrectly. To avoid penalties and find out if your restaurant is correctly accounting for unused gift cards, contact me at firstname.lastname@example.org or by phone at (404) 814-4958 for a free half-hour consultation.