An UnSEEmly Tax Problem

Have you forgotten "The Chocolate?"  Have you perhaps even invested in The Chocolate?  I haven't and I have, in that order.  I also recall touting this investment, and so felt a responsibility to follow up.  The fact that the follow-up should result in the deposition of five pounds of See's chocolate in my manipulative appendages in a few days isn't necessarily relevant; I rarely give financial advice and I'm concerned that when I do that it be good advice.  In that spirit, then, I have to advise you of a complication that has arisen in negotiating these financial "futures."  It has to do with sales tax. Due to what I believe is a misguided policy, See's not only charged me sales tax when I bought the Chocolates, they then tried to charge sales tax when I redeemed them.

See's is owned by Berkshire Hathaway, Inc., whose CEO is the legendary Warren Buffett.  Needless to say, I'm counting on him to resolve the issue for the next time I must negotiate my next tranche of Chocolates.

Mr. Warren E. Buffett, CEO
Berkshire Hathaway Inc.
1440 Kiewit Plaza
Omaha NE 68131
28 November 2007

Dear Mr. Buffett:

This letter is about a peculiar situation involving one of Berkshire Hathaway’s companies-See’s Candies. I hope you’ll have a few minutes to read it since a problem I encountered seems likely to be faced by others, and should be easily remedied when approached from the proper management level. A bit of background first:

As are you, I am an investor. Unlike you, I embody only average sagacity and lack extravagant resources. Even so, I know a good thing when I see it. When I was offered securities that offered an immediate 35% return, inflation protection, and immunity from federal and state taxation when they matured, I jumped at the chance to buy some! Too good to be true? Hardly! These securities are backed by Berkshire Hathaway, and are styled “See’s Candies One Pound Gift Certificates”! For an explanation of their remarkable investment value, please see my essay “Hedging Dollar Inflation With the Pound.” I purchased $500 worth, thinking that I could redeem them for chocolate far into the future at a discount from today’s price. And there began my problem, although I didn’t know it at the time.

See’s gift certificates are each redeemable for one pound of chocolate. It is my pleasure to live in New Jersey, one of the states in which See’s does sporadic business although no See’s stores are present. Because of this, See’s is obligated to collect New Jersey sales tax on purchases, and I was charged and paid same when I purchased the gift certificates. I didn’t think of it again until just yesterday when I attempted to redeem some of my certificates for a yummy five-pound box of See’s chocolates, as is my practice when the weather becomes conducive to shipment.  As I was completing my order, the number of certificates to be redeemed was tallied and seemed high. When I questioned this, I was told that, even though the chocolate was paid for by the gift certificate, See’s had to collect sales tax on the value of the chocolate. In other words, I would have to pay sales tax twice on the same purchase. Of course, I was having none of this. I spent far too much time on the telephone with See's discussing this issue and finally resolved it to my satisfaction, but probably not to yours. One of your employees was kind enough to agree to take one fewer certificate to make things right.

I think that this double-taxation problem was caused by less-than-thorough consideration on the part of the See’s executives who set up the program.  I can’t believe that our state’s laws contemplate double taxation for a simple retail purchase of chocolate, but rather that See’s is exhibiting excessive zeal to avoid a problem that probably doesn’t exist. I think one can make either of the arguments below, but certainly not both:

1: When I purchase a gift certificate, I’m making an investment in a financial instrument, not a retail purchase. There is no more reason to tax that transaction than to charge sales tax when I get two $10 bills for a $20. The time to charge sales tax is when I use this certificate to “purchase” chocolate.

OR, alternatively:

2: When I purchase the gift certificate, which is redeemable for chocolate and has no cash value, I am, in effect, purchasing the chocolate at that time. I paid for the certificate, I was entitled to the chocolate. In which case I should pay sales tax for the certificate and be able to redeem it without paying any tax. This is more favorable since the certificates are discounted and represent the actual price paid for the chocolate, deliverable in the future. Hence the “chocolate” should bear sales tax at the price of the certificate. If a merchant offers a $10 item on sale for $7.50, of course sales tax is levied on the $7.50, not on the original list price. This is the scenario I expected when I was required to pay sales tax on the certificates. I certainly didn’t expect BOTH scenarios!

Thank you for reading thus far. I remain the owner of hundreds of dollars worth of these valuable financial instruments, and hope that when the time comes to redeem another tranche next year for my assortment of See’s, I will be able to avoid a similar experience. Would it be possible to get the sales tax policy rationalized by then?  I really appreciate any help you can offer.

Finally, no letter from a consumer to a seller would be complete without a few words about “customer service.” I spent far too long on the telephone with four of your people, and was delighted and astonished by how not-unpleasant this activity turned out to be. I am not at all keen on telephony in general, but all of your folks were cheerful, knowledgeable, determinedly helpful, and to give special credit to one of them, incredibly patient with this cranky and demanding customer. They were Karen, Moli, Izora (whose name I may have misspelled) and the terminally patient Sylvia, who bore the brunt of my tendentiousness. I don’t know if their competence is a result of good treatment by management, excellent training, or—my guess—an unlimited supply of butterscotch squares. Whatever, it seems to be working well. If you’re looking for a new business as I assume you always are, expanding the customer service department of See’s Candies to the airlines, the banks, and government would return spectacular dividends in good will.

Yours truly,

Richard Factor (See’s customer since 1969)

P.S. I think a recommendation of See’s gift certificates belongs right up there on your web site with your recommendation of GEICO and Borsheim’s! Notwithstanding the sales tax issue, they’re a great bargain!

NP:  "Mad Mad Me" - Wendy Waldman

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