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incentive to inform their customers of the existence of any
credit balance.
In the absence of direction from the customer, petitioner
retained the credit balance in the customer’s account. If the
customer placed a subsequent order, the credit balance was
automatically applied against the cost of such order. If a
client did not use or otherwise claim the amount reflected as a
credit on his or her account, it was petitioner’s practice to
dispose of such amounts pursuant to the unclaimed property laws
of the jurisdictions in which its customers resided.3 Petitioner
did not pay its customers interest with respect to the credit
balances.
As of the close of the 1995 taxable year, 7,611 customers
had credit balances on account with petitioner. These balances
totaled $760,063. Gross sales during this period totaled
$37,159,244. As of May 31, 1996, the number of customers having
credit balances increased to 9,669, while the outstanding amount
3 During the years in issue, Arizona followed a version of
the Uniform Unclaimed Property Act of 1981 (UUPA 1981). See
Ariz. Rev. Stat. Ann. secs. 44-301 to 44-340 (West 1994). Under
UUPA 1981, intangible property held or owing in the ordinary
course of the holder’s business that has remained unclaimed by
the owner for more than 5 years is considered abandoned. See
UUPA 1981 sec. 2(a), 8B U.L.A. 595 (1993); see also Ariz. Rev.
Stat. Ann. sec. 44-302 (West 1994). As a general rule, abandoned
property must be delivered to the State of the owner’s last known
residence. See UUPA 1981 sec. 3(1), 8B U.L.A. 598 (1993); see
also Ariz. Rev. Stat. Ann. sec. 44-303 (West 1994).
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