New Jersey merchants are worried they might lose millions of dollars annually in the "sales lift" gift cards add to their bottom lines because of a new state law affecting gift card availability.

Moreover, New Jersey lawmakers' intention of helping to balance the state's budget by absorbing unused gift card balances could rob the state of millions in sales-tax revenue if it forces gift card marketers out of the state, John Holub, president of the New Jersey Retail Merchant Association, tells PaymentsSource.

Passed in 2010, the law requires merchants to collect gift card purchasers' ZIP codes at the point of sale. American Express Co. and InComm earlier this month said they were pulling their branded gift cards off of New Jersey store shelves, citing an inability to verify retailers' compliance with the law (see story).

Hundreds more gift card marketers, including merchants that market their own branded gift cards in the state, are poised to stop selling gift cards in New Jersey if the law goes fully into effect, Holub warns.

"Consumers would lose the benefit of gift cards if gift card marketers are forced to stop selling these products in the state due to this new law, but the bottom-line effects of sales tax and overall merchandise sales are also of great concern," Holub says.

The association estimates that New Jersey reaps between $64 million and $94 million annually in sales taxes gift cards generate, he says. Issuers of network-branded card also face losing interchange income.

Retailers also typically capture additional merchandise sales when consumers buy items exceeding the gift card amount or coincidentally pick up other items during the store visit, Holub says.

"It's hard to calculate the amount of additional money merchants gather when someone comes in and spends a gift card, but informally we figure it's an average of about $25 per store visit," he says.

The law threatening gift card sales was part of a bipartisan effort to rebuild state coffers by capturing gift card funds left dormant after two years. New Jersey's treasury department clarified that it would hold unused gift card balances "forever" on behalf of consumers (see statement).

Several gift card marketers and the New Jersey Retail Merchant Association filed lawsuits claiming the law violates various statutes, forcing a federal court injunction that prevented the law from taking effect, Holub says.

A judge in March lifted the injunction, prompting Amex and others to remove gift cards from many store shelves, citing the risk of noncompliance with the law. That, in turn, prompted reaction from a coalition representing the gift card industry, which is promoting passage of a bill that would reverse the law (see story).

Sources close to the situation say discussions are under way between state officials and gift card industry representatives that could lead to crafting an exemption for gift cards that never expire, which comprise many national-brand gift cards sold in New Jersey (see story).

"The biggest concern right now is the uncertainty the law is causing," Holub said. "We're fearful that more gift card marketers will pull out of the state, and if the law should ever be fully implemented, it may wipe out the entire gift card market in New Jersey, which would have a significant effect on the bottom line for the state and for merchants."

Holub says he remains "hopeful" lawmakers, the courts or New Jersey treasury department officials may come up with a compromise, "but at the moment we have no certainty of that."

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