Gift certificate rules burn small business

(FSB Magazine) -- With consumers screaming about abuses, more than 30 states have enacted laws banning gift cards and certificates with short expiration periods and requiring issuers to turn over cash from expired cards to the state. Eight states have added such laws in 2007 alone.

Caught on the bad side of good intentions, however, are small businesses that thrive on gift certificates - spas, salons, and restaurants. Fountain of Youth Day Spa in Albuquerque stopped selling certificates when the New Mexico law went into effect in July - even though gifts account for 25% of sales - because it requires certificates to be valid for five years and forces issuers to turn over 60% of the value of expired cards.

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"The new rules are obscene," says Estelle Miller, manager of the medical practice that owns the spa. "The spa may cease to exist."

Seth Gardenschwartz, head of business development at SpaBoom, a service for selling gift certificates online, blames the overkill on politicians trying to score easy points. "They think they're getting at the titans of the industry, the big-box stores, without knowing who they're really affecting," he says.