March 23 – 26, 2014
2014 Annual Conference
Bearing Fruit: Reward
and Loyalty Programs
Tuesday, March 25, 2014
Amanda Culp – Card Compliant
Charolette Noel – Jones Day
Richard Zuckerman– Dentons
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UPPO Presentation Disclaimer
Use of the Unclaimed Property Professionals Organization,
Inc., (UPPO) name or copyrighted materials in this
presentation does not constitute an endorsement by UPPO of
a member, vendor, product or service. The content
represents the opinions of the author and not necessarily
those of UPPO. This information is not intended as legal
advice and should not be used to replace the advice of legal
counsel.
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UPPO Antitrust
UPPO has a policy of strict compliance with federal antitrust laws.
UPPO members and/or meeting attendees cannot come to understandings, make
agreements, or otherwise concur on positions or activities that in any way tend to
raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing
models, methods, systems, and applications, as well as certain cost matters that do
not lead to an agreement or consensus on prices or fees to be charged. However,
there can be no discussion as to what constitutes a reasonable, fair or appropriate
price or fee to charge for any service or product.
Information may be presented with regard to historical pricing activities so long as
such information is general in nature and does not include data on current prices or
fees being charged in any trade area. Any discussion of current or future prices, fees,
discounting, and other terms and conditions of sale, which may lead to an agreement
or consensus on prices or fees to be charged, is strictly prohibited.
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2014 Annual Conference
March 23 – 26, 2014
CPE Credit
CPE credit is available at this conference.
However, NASBA rules require proof you attended the
sessions. For UPPO to provide verification of
attendance, you MUST be scanned in AND out of
each session to be eligible to receive credit(s).
Please see the room monitor(s) at the back of room to
have your name badge scanned.
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Past, Present and Future of
Promotional, Reward & Loyalty Programs
Past: Sperry & Hutchinson – In 1960, NJ Supreme Ct. dismissed
action to escheat trading stamps, finding no property right.
Present: Unliquidated, contingent obligations under loyalty
programs generally not reportable as unclaimed property, for
various reasons. But NAUPA recommends to “refine” the
Uniform Unclaimed Property Act to "expressly” include
promotional and loyalty programs. Refine? Expressly?
Future: Expanding functions of promotional, reward & loyalty
programs raise new considerations for unclaimed property.
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Overview of
Promotional, Reward & Loyalty Programs
Types of programs have evolved and are varied
• Structured marketing programs
• Reward and encourage loyal behavior
• Promote brand marketing
• Distinct but often related to stored value cards
- New Jersey example
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2014 Annual Conference
March 23 – 26, 2014
Legal Overview of
Promotional, Reward & Loyalty Programs
Involves legal concepts under
• Property Law
• Contract Law
• Consumer Protection
• Constitutional/Federal Common Law
• Conflicts Among the States
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Property Law Concepts for Promotional,
Reward & Loyalty Programs
• Are promotional points/stamps/miles "property?"
• What are the attributes of "property?"
• What legal tests should be applied?
• If there are conflicts in state law as to whether
property exists, which law trumps?
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Contract Law Concepts for Promotional,
Reward & Loyalty Programs
• Can a State claim a right beyond that allowed under
the program terms, and which is inconsistent with
the very nature of a "promotion" or a "reward" for
"loyalty?"
• Do the contractual terms control for establishing a fixed
and determinable right?
• Do the contractual terms control for redemption
limitations?
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2014 Annual Conference
March 23 – 26, 2014
Consumer Law Concepts for Promotional,
Reward & Loyalty Programs
• Promotional points/stamps/miles are often subject
to special consumer protection laws
– Federal Law Examples
• CARD Act (defines an exemption for loyalty programs)
• CFPB is focusing on reward programs
• Fed Transport. Code, 49 U.S.C. § 41713(b) (preemption
relating to airline rates and services)
– State Law Examples
• Limits on expiration dates and fees
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Constitutional Law Concepts for
Promotional, Reward & Loyalty Programs
• Due Process
– Personal Jurisdiction and Notice
• Federal Preemption and Jurisdiction over Conflicts
between State Laws
– Relevance of Domicile
– Federal Common Law
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Other Key Legal Concepts for
Promotional, Reward & Loyalty Programs
• Income Tax Law Concepts
– Are Promotional Points/Stamps/Miles taxable
“income”?
– IRS Announcement 2002-18
• IRS will not assert taxable “income” by reason of
receipt or use of “in-kind” promotional benefits
attributable
• Does not apply to benefits converted to cash, to
compensation paid in the form of travel or other
benefits, or where used for tax avoidance purposes.
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2014 Annual Conference
March 23 – 26, 2014
History/Future of Promotional, Reward &
Loyalty Programs
• Trading Stamps - offered to customers; involved third
party obligations to accept completed books as method
of exchange for products, upon satisfaction of conditions
• Promotional points/miles/stays to customers involving
“in-kind” promotional benefits from a retail chain,
subject to terms/conditions
• Promotional programs that offer ability to redeem for
benefits provided by third parties
• Social media and other digital promotional programs
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Key Legal Concepts for
Promotional, Reward & Loyalty Programs
• Fixed and Certain Obligations
• Derivative Rights Doctrine: The Nature of the Obligation
as a "promotion" or a "reward" for "loyalty"
• Bundled Transactions
• Law of De Minimis Transactions
– Essence of the transaction
– 10% de minimis analogy for sales taxes
– De minimis for income taxes
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Overview of State Unclaimed Property
Laws involving Promotional, Reward &
Loyalty Programs
• In addition to certain federal preemptions, various
state provisions confirm reward program points are
either:
– Not unclaimed property (fails definitional
provisions), or
– Exempt under one or more provisions
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2014 Annual Conference
March 23 – 26, 2014
Pending Legislation involving
Promotional, Reward & Loyalty Programs
• Update on recent pending legislation
• NAUPA, as presented to the Drafting Committee of
the Uniform Law Commission has recommended to
“refine” the Uniform Unclaimed Property Act to
“expressly” include promotional and loyalty
programs
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Sample State Exemptions for Promotional,
Reward & Loyalty Programs
• Example of State Specific Exemptions
– Arizona: "certificates evidencing property denominated in value
other than a currency, including prepaid phone cards, frequent
flyer miles, stored value cards and merchandise points" are not
considered to be property subject to unclaimed property
statutes. Ariz. Rev. Stat. Ann. §44-301(15)
– Michigan: "gift certificates" does not include any certificate
"distributed to a consumer or employee pursuant to an awards,
rewards, loyalty, or promotional program, if the consumer or
employee is not required to give consideration for the gift
certificate." Mich. Comp. Laws § 445.903e
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Sample State Exemptions for Promotional,
Reward & Loyalty Programs
• Texas: Stored value cards issued "to a person under an awards,
rewards, loyalty, incentive, rebate, or promotional program [that
are] not issued or reloaded in exchange for money tendered by
the cardholder" are not required to be reported as unclaimed
property. Tex. Property Code Ann. § 71.1016(a)(1)
• California: gift certificates (exempt) issued pursuant to an
awards, loyalty or promotional program without any money or
other thing of value being given in exchange for the gift
certificate by the consumer are permitted to contain an
expiration date, as long as the date appears in capital letters in
at least 10 point font on the front of the gift certificate. Cal. Civ.
Code § 1749.5(d)
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2014 Annual Conference
March 23 – 26, 2014
Sample State Exemptions for
Promotional, Reward & Loyalty
Programs
• Louisiana: certificates “distributed by the issuer to a consumer
pursuant to an awards loyalty or promotional program without
any money or other thing of value being given in exchange for the
gift certificate by the consumer" do not have to follow expiration
date or service fee limitations that otherwise apply to gift
certificates issued in Louisiana. La. Rev. Stat. Ann. §51:1423(D)
• If “gift certificate“ is broadly defined, some statutes clarify
exemption:
Example - Florida: "[A] gift certificate may have an expiration
date if it is provided to the recipient, or to a purchaser for
transfer to the recipient, as part of a loyalty or promotional
program when the recipient does not pay a separate
identifiable charge for the certificate."
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Sample State Exemptions for Promotional,
Reward & Loyalty Programs
• If “intangible property” is broadly defined, some statutes clarify
exemption:
Example – South Carolina: intangible property includes “credit
balances, customer overpayments, security deposits, refunds,
credit memos, unpaid wages, unused airline tickets, and
unidentified remittances except that intangible property does
not include trading stamps and electronic entries representing
trading stamps that are awarded to retail customers incident
to the purchase of goods.”
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NAUPA Recommendation #9
February 4, 2014
• Proposed Revision of the Uniform Unclaimed Property
Act:
– “Refine existing definitions of unclaimed property to
expressly include promotional incentives and loyalty
programs.”
– Citation: 1995 Uniform Act Section 1(13)(ii), which
defines “Property” to include: “credit balance,
customer’s overpayment, gift certificate, security
deposit, refund, credit memorandum, unpaid wage,
unused ticket, mineral proceeds, or unidentified
remittance.”
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2014 Annual Conference
March 23 – 26, 2014
Comments to the 1995 Act
• Comments to 1995 Uniform Act, Section 4(6):
Paragraph (6) provides for a situation in which neither
of the priority claims discussed in Texas v. New Jersey
can be made, but the State has a genuine and
important contact with the property. An example of
the type of claim which might be made under
paragraph (6) arose in O'Connor v. Sperry &
HutchinsonCo., 412 A.2d 539 (Pa.1980).
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Intertwining of Other Laws
• Recent cases involving loyalty programs
– Consumer actions
– Bankruptcy actions
– Others
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Cutting Edge Programs
• Discussion of various types
• Structure considerations
• Audit experience
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March 23 – 26, 2014
2014 Annual Conference
Questions/Comments
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•
Penny for your thoughts
Co-promotions
Digital accounts in the cloud
Other
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Presenters Contact Information
CHAROLETTE NOEL, ESQ.
Tax Partner
Jones Day
2727 N. Harwood Street
Dallas, Texas 75201
214.969.4538 | 214.969.5100 (fax)
cfnoel@jonesday.com
AMANDA CULP, ESQ.
Assistant General Counsel
Card Compliant
460 Nichols Rd., Ste. 300
Kansas City, MO 64112
913.871.7445 Direct
aculp@cardcompliant.com
RICHARD ZUCKERMAN, ESQ.
Partner
Dentons US LLP
1221 Avenue of the Americas
New York, NY 10020
212.398.5213 | 212.768.6800 (fax)
richard.zuckerman@dentons.com
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