Apple owes more than $500K in taxes for iPhones sold between 2010 and 2013

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in General Discussion
Apple reportedly owes more than $500,000 in sales tax and penalties in the U.S. state of Maine for iPhone models it sold between 2010 and 2013, according to a new report.

Credit: Apple
Credit: Apple


The state's Supreme Judicial Court overturned a previous decision that sided with Apple after Maine's tax assessor argued that the Cupertino tech giant underpaid its taxes, according to local media outlet WGME.

Apple should have paid state taxes on the full price of iPhone models sold at a discount through wireless carrier contracts, the court ruled. Specifically, the court used the example of subsidized devices that are purchased on contract through carriers.

A state tax audit found that Apple owes $430,000 in sales tax and more than $100,000 in fines from May 2010 through April 2013 in Maine. The state says that it should have taxed Apple at the full cost of the iPhones since it had agreements with carriers to recoup the cost differences.

Reportedly, the issue only applied to iPhone models bought at a discount directly from Apple. That generated separate bills for the device and carrier charges.
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Comments

  • Reply 1 of 22
    1\2 million dollars. Whoop-de-do.
    MacPro
  • Reply 2 of 22
    crowleycrowley Posts: 7,630member
    imagladry said:
    1\2 million dollars. Whoop-de-do.
    Rather you than me.
  • Reply 3 of 22
    sdw2001sdw2001 Posts: 17,421member
    So the state undercharged them and now demands payment.  Apple should probably just pay it for PR reasons.  Or they tell them to go screw.  
  • Reply 4 of 22
    davidwdavidw Posts: 1,179member
    sdw2001 said:
    So the state undercharged them and now demands payment.  Apple should probably just pay it for PR reasons.  Or they tell them to go screw.  
    Not only payment for what the State undercharged, but also a $100K fine for not paying the amount of tax that the state should have charged, but didn't. 

    I could see the fine if Apple knew how much tax they were suppose to be paying, but underpaid it. 
    edited February 19 baconstangsdw2001
  • Reply 5 of 22
    rob53rob53 Posts: 2,491member
    What’s statute of limitations on sales tax payments. This ended almost 8 years ago. 
  • Reply 6 of 22
    h2ph2p Posts: 304member
    Being sales tax, the iPhone buyer should have paid the appropriate taxes. Sounds to me like the cash register was programmed incorrectly or, as some here have said, "the State undercharged." Of course, Apple will pay it and be done with it. But, they may take a bit of time to explain their POV before they eventually pay.

    BTW, when my wife leased a car in Illinois, she paid the full purchase price tax of the vehicle for a 3 year lease (presumably she shelled out about 1/3-1/2 the price of the car in lease/rent). In Missouri you only pay tax on the actual amount of your car lease payments.
  • Reply 7 of 22
    sflocalsflocal Posts: 5,517member
    That's about .0000001 seconds worth of iPhone sales.  
    MacPro
  • Reply 8 of 22
    The fact that there is a difference of opinion between the lower courts and this supreme court indicates to me that this was not an open and shut case. 

    The facts or the law is under significant dispute. 

    Will Apple just pay the amount and fine. Well, it might be important from the legal perspective to petition SCOTUS. 
  • Reply 9 of 22
    JFC_PAJFC_PA Posts: 543member
    There’s another bunch of states to consider so if Apple is the least bit concerned of a precedent this won’t be over. 
    dewme
  • Reply 10 of 22
    rob53 said:
    What’s statute of limitations on sales tax payments. This ended almost 8 years ago. 
    When it comes to the state wanting tax money, there's probably no limit. They'll get their share and then some.
  • Reply 11 of 22
    davidwdavidw Posts: 1,179member
    I think I figured out what happened here. With what little pieces of info given.

    In CA and I assume also in other States, businesses are suppose to collect sales tax on the full value of an item, if the buyer uses a discount coupon or got a rebate on that item. 

    Here, Apple and certain carriers made a deal where the carrier would offer a discount coupon, for an iPhone, if they sign a contract with the carrier. And the carrier would later pay Apple back for the discount. So when these people went to an Apple Store or bought online, Apple would honor the coupon or rebate.

    Now in Maine, the tax people informed Apple that they only need to charge tax on the price of the iPhone, after honoring the discount coupon. (No way this would be the case in CA.) That would be like if Apple were to have a sale on iPhones, they only had to collect sales tax on the sale price of the iPhone, not the retail price. (This is true, even in CA.)

    Later, the Maine tax people found out that the agreement Apple had with the carrier, included the carrier paying any sales tax on the value of the discount coupon, if Apple had to collect sales tax on the discounted portion of the iPhone purchase. (Like in CA.) But since the tax people in Maine told Apple that they only had to collect sales tax on the discounted price, Apple did not charge the carrier any sales tax for the iPhones sold in Maine, when the carrier paid Apple back for honoring the discount coupon.

    So the tax people in Maine are basically saying to Apple ...... we made a mistake by telling you that you didn't have to collect sales tax on the discounted portion of the iPhones sold to consumers using the carrier's coupon. If we had known that the carrier would had paid the sales tax on the discounted portion under your agreement with them, we would have told you to collect the sales tax on the retail price of the iPhone. But pay up anyway and BTW- were going to fine you $100K for not collecting sales tax on the retail price of the iPhones that were sold at a discount with a carrier coupon, even though we told you you didn't have to. 


    Fidonet127dewmerandominternetpersonviclauyycapplguymuthuk_vanalingam
  • Reply 12 of 22
    Rounding error.
  • Reply 13 of 22
    MplsPMplsP Posts: 2,935member
    rob53 said:
    What’s statute of limitations on sales tax payments. This ended almost 8 years ago. 
    When did lawsuit start, though? They've probably been bickering over this for 3-4 years.

    Seems a bit backwards - If I go to Best Buy and Buy a $500 TV on sale or $400, I only pay sales tax on $400, right?
  • Reply 14 of 22
    MplsP said:
    rob53 said:
    What’s statute of limitations on sales tax payments. This ended almost 8 years ago. 
    When did lawsuit start, though? They've probably been bickering over this for 3-4 years.

    Seems a bit backwards - If I go to Best Buy and Buy a $500 TV on sale or $400, I only pay sales tax on $400, right?
    Right, but it sounds like the carriers were paying Apple the extra $100 (in your example) so Apple is on the hook for remitting the tax on that as well.  
  • Reply 15 of 22
    davidwdavidw Posts: 1,179member
    MplsP said:
    rob53 said:
    What’s statute of limitations on sales tax payments. This ended almost 8 years ago. 
    When did lawsuit start, though? They've probably been bickering over this for 3-4 years.

    Seems a bit backwards - If I go to Best Buy and Buy a $500 TV on sale or $400, I only pay sales tax on $400, right?
    Right, but it sounds like the carriers were paying Apple the extra $100 (in your example) so Apple is on the hook for remitting the tax on that as well.  
    It's not so much that Apple got the $100 (in this example), but that the consumer that bought the iPhone using the carrier discount, got the $100. Businesses do not pay the sales tax, the consumers pays the sales tax. The businesses only collects the sales tax for the government. 

    Here, Maine said that Apple was should have collected the sales tax from the consumers, for the retail value of the iPhone because the buyers ended up with an iPhone of that value. Even though they paid less for it because they got the carrier discount. And it appears that Maine changed their mind about having Apple collect the sales tax on the retail value of the iPhone, instead of just what the iPhone sold for with the discount, after they found out Apple agreement with the carrier included having the carrier pay any sales tax on the value of the discount. 

    So Apple is now on the hook for the sales tax on the discounted amount of the iPhone sold using the carrier discount. But maybe Apple can recoup that from the carrier, if they are still in business. 

    Here's how screwy things can get.

    In CA, we have a liquor warehouse kind of store (Liquid Barn or BevMo?) that often have "buy one, get one free" sales. with this kind of sale, the consumers still have to pay the sales and alcohol tax on the free one. So for example, if a consumer buys a bottle of wine for $20 plus $3 in taxes, They still have to pay the $3 in taxes on the free bottle because the government are saying that the consumer still ended up with a bottle of wine valued at $20. So it comes to $26 for the two bottles of wine. This adds up when one buys a case of the wine. 

    But if the liquor store has a 50% off sale on that same bottle of wine. The consumer would pay $20 ($10 each) for the 2 bottles of wine but only get taxed on $20. They do not have to pay the tax on the discount they got. So they end up paying $23 for exactly the same two bottles of wine. And the business makes exactly the same profit on the sale. But the government loses out. If the bottle of wine goes on sale for $10, then that is the value of that bottle of wine, at time of purchase.  
    h2p
  • Reply 16 of 22
    gatorguygatorguy Posts: 22,827member
    For everyone commenting:

    "Apple should have paid state taxes on the full price of iPhones sold at discounted prices through wireless carriers over a three-year period at its stores in Maine, the state supreme court ruled.

    The Maine Supreme Judicial Court unanimously overturned a judge’s decision that sided with Apple after the state tax assessor argued that taxes were underpaid by tens of thousands of dollars.

    An audit found that Apple owed more than $430,000 in sales taxes and more than $100,000 in fines from May 2010 through April 2013.

    An attorney for Apple declined comment.

    During the time period, Apple sold iPhones at a discount if the consumer signed a long-term contract with Verizon Wireless, AT&T Mobility or Sprint, and then taxed the consumer on the discounted price. For example, a $649 iPhone typically sold for $199 with a two-year contract with a wireless carrier, the court said.

    The tax question has come up in various states. In Maine, the state contended the iPhones should have been taxed at the full cost since Apple had agreements to recoup the cost difference with the wireless carriers.

    “The price reductions, the carriers’ payments, and the length of the wireless contracts were all directly related,” Justice Andrew Horton wrote.

    The issue applied only to iPhones sold directly from Apple, which generated separate bills for the iPhone and wireless carrier’s charges, Horton wrote. The wireless carriers didn’t separate the bills the way Apple did, so they didn’t run into the same problem with Maine Revenue Service when selling iPhones, he wrote."

    h2pmuthuk_vanalingam
  • Reply 17 of 22
    h2ph2p Posts: 304member
    gatorguy said:
    For everyone commenting: The issue applied only to iPhones sold directly from Apple, which generated separate bills for the iPhone and wireless carrier’s charges, Horton wrote. The wireless carriers didn’t separate the bills the way Apple did, so they didn’t run into the same problem with Maine Revenue Service when selling iPhones, he wrote."
    Thank you for highlighting these quotes, gatorguy ... It clearly shows that Apple would have avoided the extra taxes if they sold the phones for $199... as with the wine example above (Davidw's BOGO vs. 50% off sale)... this was a $649 sale. I suspect Apple accounting likes splitting out the various charges.

    But, Is the Apple portion of sales tax calculated from $649 - $199?
  • Reply 18 of 22
    How much did the state of Maine spend to recover the $500k? Did anyone there compute the return on the investment?
  • Reply 19 of 22
    gatorguygatorguy Posts: 22,827member
    paraeeker said:
    How much did the state of Maine spend to recover the $500k? Did anyone there compute the return on the investment?
    I would assume that Maine leaned heavily on staff attorney's already employed by the state. Perhaps Apple used in-house attorneys too, or maybe not. Had the Maine revenue department lost then there would be the loss from future sales as well. I don't think it would have been wise of Maine to ignore it. 
    edited February 22
  • Reply 20 of 22
    davidw said:
    sdw2001 said:
    So the state undercharged them and now demands payment.  Apple should probably just pay it for PR reasons.  Or they tell them to go screw.  
    Not only payment for what the State undercharged, but also a $100K fine for not paying the amount of tax that the state should have charged, but didn't. 

    I could see the fine if Apple knew how much tax they were suppose to be paying, but underpaid it. 
    There's no fine involved, at least not yet and as far as I'm aware. The $100,000 or so was for interest, not a fine. The original assessment found that Apple owed $438,000 in tax and another $101,000 in interest. That assessment is what was just effectively upheld.
    muthuk_vanalingam
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