Tennessee restaurant gift cards: the five-year federal floor

A Tennessee restaurant's gift cards must follow the federal gift card rule, 12 CFR 1005.20: the funds underlying a card must last at least five years, an inactivity fee is allowed only after a year with no activity and with clear disclosure, and the terms must be printed on the card. Tennessee also has its own gift certificate and unclaimed property provisions, so read them with an attorney before you print terms.

What does the federal rule require?

Regulation E treats a restaurant gift card as covered when a guest buys it mostly for personal or household use. Think of the five-year floor as a promise to the buyer: whatever date you print, the money on the card has to stay usable for five years from the day it was sold or last topped up. The card itself has to say when the money expires, or that it never does, and give a phone number or web address for a replacement. Put that wording on the plastic or paper, because a leaflet in the bag does not count.

What fees are allowed?

A fee for a card that sits unused is allowed only after twelve months without a purchase or reload. Even then it must be stated up front on the card, with its amount and how often it recurs, and it cannot be taken more than once in a month. Terms fixed at the sale cannot be made worse later. Most neighborhood restaurants choose not to charge anything, and that avoids arguments.

What did the Tennessee determination decide?

Tennessee has its own provisions on gift certificates and on how unused balances are treated under its unclaimed property law. I have not confirmed their current wording, and an older state provision may not apply to cards that the federal rule covers. Ask an attorney, or the Tennessee Attorney General's consumer protection office, how the state provisions fit with the federal five-year floor, and keep the answer with your card terms.

Which cards are outside the rule?

The regulation excludes some cards, such as certain reloadable cards not marketed as gift cards, paper-only cards, cards not marketed to the general public and cards for venue or event admission. Loyalty, award and promotional cards are excluded from the gift card definition but must still carry labeling about expiration and fees. A free dessert card handed out as a reward is the usual example.

A worked example of a holiday card sale

You sell a $100 card in November. The card says No expiration and No fees, and gives the website and a phone number for balance questions. A guest finds it in a drawer in year seven and uses it for a $100 dinner. You honor it, apply tax to the meal as for any check and move the $100 from liabilities to revenue. A $20 bonus card given with the purchase says Valid January 1 to February 28 on its face, and a guest who arrives in March cannot use it, because it was promotional and the date was printed on the card.

How do you handle sales tax?

Tax applies to the meal that the card pays for, not to the sale of the card. Record card sales as a liability until they are used. For the Tennessee rate and the local add-on, see the existing guide on Tennessee sales tax for restaurant food and drinks.

What about unredeemed balances?

Unredeemed balances raise questions under Tennessee's unclaimed property law. Ask your accountant how to treat long-unused balances and what records to keep. Do not write balances off on your own schedule.

What should you do now?

1. Compare your card text and terms with the federal list.
2. Remove any fee you do not intend to charge.
3. Keep paid and promotional cards in separate series.
4. Train staff on balance checks and replacement.
5. Ask an attorney how Tennessee's gift certificate and unclaimed property rules apply to your cards.

How should you sell and track cards?

Whether you sell cards at the counter, on your website or through a third party, record each card's number, value, date and balance. Show the terms before payment and repeat them in the confirmation. If a platform sells cards for you, read the agreement for its fees and for when it pays you, since a card sold in December may not reach your bank until January. Train staff to check a balance, apply a card after the tax is worked out and handle a lost card, and decide in advance whether you will replace a card when a guest can show a receipt. Write the decision into your terms so that every server answers a lost card the same way, and review it each year with your accountant.

More guides for your business:

• Tennessee automatic renewal law for restaurant memberships
• Tennessee credit card surcharge rules for restaurants
• Tennessee mandatory gratuity and sales tax: why it is taxed

More in the US guides for food businesses.