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April 2024

Managing Unredeemed Gift Certificates and Initiation Fees in Golf Course Businesses

By Ronnie Miles

Enticing golfers to purchase gift certificates for friends and family is a time-honored tradition in our golf course businesses. Pro shops have been offering this service for many years. However, questions often arise about unredeemed gift certificates. Also, many private clubs offer refundable initiation fees, prompting the need for clear financial management.

Unredeemed Gift Certificates:

One common question is about the shelf life of unredeemed gift certificates. How long should the books be kept open on these certificates, and when does this liability convert to a cash asset? Typically, it's essential to have a clear policy in place. Many businesses operate with a timeframe, after which unredeemed certificates are considered null and can be converted into revenue. These are now considered unclaimed property.

Refundable Initiation (refundable equity) Fees:

As part of their tradition, private clubs sometimes offer refundable equity to their members. Proper accounting for these funds is crucial. What happens when the member leaves and fails to request the return of their refundable equity? These are now considered unclaimed property. Businesses should establish transparent guidelines for managing these fees, ensuring accurate financial reporting. Learn more on this topic from Mitch Stump’s Club Tax Book.
Escheatment and Unclaimed Property:

Another facet to consider is the possibility of abandoned funds or unused gift certificates becoming subject to escheatment. Laws regarding unclaimed property vary by state, but the common trend is that most states require transferring unclaimed abandoned property to the state treasurer after five years. This process, known as escheatment, involves transferring unclaimed assets to the state or government. The value of the gift certificate triggering escheatment also varies by state.

Purpose of Escheatment:

Escheatment serves a dual purpose. It protects the property rights of the owners, preventing holders from utilizing the property for personal gain. Simultaneously, it provides a revenue source for the state, contributing to funding public programs and services.

In conclusion, while holiday promotions and refundable fees are cherished traditions in golf course businesses, a well-defined financial strategy for managing unredeemed certificates and initiation fees, along with understanding escheatment laws, is essential for maintaining a sound and compliant operation.

We encourage you to review your state’s escheatment regulation. NGCOA has compiled a list of state escheatment laws to assist our owners and operators in learning how your state treats unredeemed gift certificates. Click here to learn when your state declares your gift certificates dormant. Many of these laws' guidance on gift certificates may be vague. Contact your state treasurer’s office if you have questions.

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