California wants to end Cupertino’s tax deal with Apple

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Apple’s home city of Cupertino faces losing almost $60 million after California authorities declare that the company’s tax should be shared across the state.

In a move similar in principle to how the EU retrospectively sought to fine Apple over its tax agreement with Ireland, the California Department of Tax and Fee Administration (CDTFA) is changing the company’s arrangement with Cupertino. Since 1998, Apple has declared all of its online sales made in California as having taken place in Cupertino.

As first spotted by the San Jose Spotlight, this means that of Apple’s 7.25% sales tax, the local 1% portion goes to the city. Then under the same deal, Cupertino actually returns approximately one third of this revenue to Apple.

Consequently the benefit to Apple is clear, but also Cupertino profits because it sees significantly greater sales tax revenue than it otherwise might.

“The CDTFA has done an audit of one of our big taxpayers and has identified that there are dollars being allocated improperly,” Cupertino Assistant City Manager Matt Morley told the publication, “and through that audit they are asking for that process to be corrected.”

“The city obviously isn’t happy with this and we don’t believe the CDTFA is on base,” continued Morley.

Reportedly, the CDTFA’s state tax officials have concluded that the city of Cupertino owes it $56.5 million. This is for the period from April 2021 to June 2023, though it’s not clear how those dates were determined.

At the same time, the tax officials are said to have decided that Apple must reimburse the state $20 million. This figure would then be reallocated to other areas of the state.

The impact on Cupertino could be significant, but the city is appealing the ruling — and the appeal could take anywhere from seven to ten years. Even so, the Cupertino City Council has agreed to set aside the $56.5 million to prepare for the potential future loss.

Should the CDTFA prevail, Cupertino’s Morley said non-essential city services could be reduced or even cut. Annually, Cupertino would see a 73% drop in sales tax revenues, and would face having to cut almost a quarter of its operational costs.

It’s important to note that the San Jose Spotlight says Apple has not officially been named in the present discussions. But it also says that sources among the city leaders have indicated that the company concerned is Apple, and others “have slipped out such confidential information” during a public meeting.

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