Can You Buy a Gift Card With a Gift Card?

A common question regarding gift card usage is whether one gift card can be used to purchase another. This query frequently arises among consumers seeking flexibility or a way to consolidate balances. Understanding the specific rules and underlying reasons behind these policies is important. This article clarifies the general practices and specific scenarios surrounding the purchase of gift cards with other gift cards.

Understanding the General Restriction

Most retailers do not permit using one gift card to purchase another. This widespread policy primarily mitigates financial risks and maintains transactional integrity. A significant concern is fraud prevention, as allowing such exchanges could facilitate the use of stolen or fraudulently obtained gift cards to create new, untraceable ones. This process could enable criminals to “wash” illicit funds, making them harder to track.

Beyond fraud, businesses face complexities in accounting and financial tracking. Gift cards are typically recorded as a liability, or deferred revenue, when sold, not as immediate sales. Revenue is only recognized when the gift card is redeemed for goods or services. Allowing a gift card to purchase another would complicate liability tracking and revenue recognition, creating a complex system for financial reporting.

Sales tax implications also contribute to this restriction. Sales tax is generally applied when a gift card is redeemed for taxable goods or services, not when initially purchased. Treating gift cards as cash equivalents for purchasing others would obscure the point of sale for tax collection. This could lead to double taxation issues or compliance challenges. Therefore, most businesses do not consider gift cards as true cash equivalents for this purpose.

Retailer-Specific Policies and Scenarios

While a general restriction on purchasing gift cards with other gift cards is common, specific retailer policies introduce variations. The definitive answer for any transaction depends on the individual retailer’s rules, as no federal or state law dictates this. Most major retailers explicitly prohibit such purchases. Their point-of-sale systems are often programmed to block these transactions automatically, both in-store and online.

It is important to differentiate between using a gift card to buy another and using a store credit or merchandise return card. Store credit is typically issued as a refund for returned goods or as part of a loyalty program. Unlike gift cards, which are prepaid payment instruments, store credit represents a credit balance within the issuing store’s ecosystem. Some retailers might permit store credit for purchasing gift cards, as it functions more as a refund mechanism.

This distinction means that while the core reasons for prohibiting gift card-to-gift card transactions remain, store credit can sometimes be an exception. Consumers should always consult the terms and conditions of their specific gift card and inquire directly with the retailer. Policies can vary significantly between retailers.

How Gift Card Types Influence Purchases

The characteristics of different gift card types play a significant role in whether they can be used to acquire other gift cards. Gift cards generally fall into two main categories: closed-loop and open-loop. Understanding these distinctions clarifies the limitations encountered during purchase attempts.

Closed-loop gift cards are issued by a specific merchant and are only redeemable at that merchant or affiliated businesses. Examples include cards for a clothing store, restaurant, or coffee shop. These cards are almost universally restricted from purchasing other gift cards, even from a different retailer. The primary purpose of closed-loop cards is to encourage spending within a specific brand’s ecosystem. Allowing them to be converted into other gift cards would undermine this objective.

Open-loop gift cards, by contrast, are issued by financial institutions and carry the logos of major payment networks like Visa, Mastercard, American Express, or Discover. These cards can be used wherever the respective card network is accepted, functioning much like a debit or credit card. Despite their broader acceptance, open-loop gift cards are generally still subject to the same restrictions when purchasing other gift cards. This is primarily due to merchant policies designed to prevent fraud and money laundering, which apply regardless of the card type. Retailers implement safeguards to prevent their use in transactions that could facilitate illicit activities or complicate financial tracking.