United States

New Jersey court finds merchandise credits improperly escheated


On Sept. 21, 2017, the Superior Court of New Jersey issued its decision in Bed Bath & Beyond, Inc. v. New Jersey, holding that certain merchandise credits unredeemable for cash were not subject to escheat under the New Jersey Unclaimed Property Law (NJUPL).

Bed Bath & Beyond (BB&B), a national retailer of home goods and furnishings, issued merchandise credits to customers who returned purchases without a receipt. The credits were redeemable for new merchandise at BB&B or affiliated stores. The merchandise credits could not be redeemed for cash refunds and had no expiration date. However, BB&B customers with purchase receipts could return purchases for cash.

From July 1, 1999 to June 30, 2010, the unused balances of the merchandise credits totaled almost $1 million. From 2004 to 2012, BB&B reported and escheated the value of the unredeemed merchandise credits to the state unclaimed property administrator as unclaimed property, once the three-year dormancy period had elapsed.

BB&B later filed a refund claim for the value of the credits on the basis that such credits were not actually subject to escheat under the NJUPL. BB&B’s claim rested on the fact that since the credits could not be redeemed for cash, only merchandise, they were not subject to escheat under the law. The claim was denied by the unclaimed property administrator.

Separately, BB&B-VSI, a subsidiary of BB&B, issued similar merchandise credits to customers from July 1, 2010 to June 30, 2011. In 2014, the subsidiary reported approximately $250,000 of unredeemed merchandise credits as unclaimed property. BB&B-VSI also requested a refund of those amounts, claiming that the reported credits were actually “stored value cards” and not subject to escheatment under the expiration of a five-year dormancy period, and only reportable at 60 percent of the value of the credit. The claim was also denied.

Both the BB&B and BB&B-VSI refund claims were appealed to the superior court and consolidated for purposes of the opinion.

In reviewing BB&B’s refund denial of merchandise credits issued through June 30, 2010, the court found that because the credits were only redeemable for merchandise, and not a payment of cash, the credits should have been excluded under the NJUPL. In earlier decisions, the court had found that all “intangible property” under the provisions of the law were claims for the payment of money and subject to escheat. However, the court had also determined that gift certificates were not intangible property because gift certificates could be redeemed for merchandise. Accordingly, BB&B’s merchandise credits, which were similar to gift certificates, were not subject to escheat for periods prior to June 30, 2010.

The BB&B-VSI refund claim was separately reviewed because in 2010, New Jersey amended its unclaimed property laws to include and define “stored value cards.” Additional amendments in 2012 further clarified that stored value cards include obligations redeemable for merchandise and services, in lieu of a refund. The 2012 amendments also limited the escheatment on non-reloadable cards to 60 percent of the value at the time the property is presumed abandoned. In addition, the amendments expanded the “intangible property” dormancy period from three years to five years. The court found that BB&B’s merchandise credits issued between July 1, 2010 and June 30, 2011, were subject to escheat because they were similar to stored value cards. However, the dormancy period had not yet elapsed because only three years had passed. Additionally, the merchandise credits were escheated at full value, rather than at 60 percent. Accordingly, BB&B-VSI’s refund claim should not have been denied because the remittance of the credits were both premature and incorrectly calculated.


Through the amendments to the NJUPL, the state has issued specific guidance on stored value cards. Although stored value cards are now subject to escheat, it is important for companies to review their filings to ensure they have not remitted merchandise credits prior to July 1, 2010. In addition, companies should review their merchandise credits and stored value cards in order to ensure that the property is remitted at the correct value. The decision provides a number of potential refund opportunities for holders who have over remitted. Holders should consult their unclaimed property advisers with questions.

Last year, a California superior court found that similar merchandise credits were not subject to escheatment. For more information on that decision, please read our alert, California court rules some merchandise credits not subject to escheatment.

Related Insights

Retailers must be mindful of gift card tax pitfalls

Retailers should assess gift card procedures including an annual review of reporting, sales tax, unclaimed property and more.

Discounting: Consumer demand vs. accounting complexity

Retailers should understand the tax and accounting issues that arise when responding to consumer demands for discounted goods.


How can we help you with state & local tax planning?

Subscribe to Tax Alerts