The Washington Department of Revenue released Interim Guidance to address the tax liability of gift card issuers on income received from sales of gift cards that are unredeemed. Under the Uniform Unclaimed Property Act, gift cards are presumed to be abandoned if they are not redeemed after three years. Businesses are not required to report abandoned gift cards as unclaimed property, but should account for unredeemed, abandoned gift cards by either:
“Breakage income” is income received from unredeemed gift cards considered abandoned and is taxable under the Service & Other B&O tax classification in Washington. (Interim Statement Regarding the Taxability of Unredeemed Gift Cards, Washington Department of Revenue, October 17, 2018).