California wants a bigger piece of Cupertino's tax earnings from Apple

AppleInsider

A tax deal relating to online sales between Apple and the city of Cupertino is set to fall through, resulting in a 73% tax revenue decline.

Apple's hometown is Cupertino

Since 1998, Apple has reportedly had a deal with its hometown of Cupertino to treat all online sales made in California as if they were made in that city. This led to the 1% local portion of tax revenue swelling for years as Apple grew, not to mention a 35% kickback to Apple from Cupertino.

According to a report from Bloomberg, an audit that launched in 2021 by the California Department of Tax and Fee Administration has led to a breakdown of this old deal with Apple. Nothing is set in stone, as Cupertino's finance director is scheduled to explain the audit's findings to the city council on Thursday, but Cupertino is expected to see a significant tax revenue decline.

The report explains that Apple had a deal with Cupertino to report every online transaction made in California as if it were made in Cupertino. California law states that a portion of the sales tax goes to the location where a transaction takes place.

So, Apple reports all online sales in California as taking place in Cupertino, then it pays the 7.25% state sales tax to the tax department. The local 1% portion goes to Cupertino, which then passes 35% of that total back to Apple.

Those payments back to Apple have added up to $107.7 million since 1998, according to this report.

The tax revenue for Cupertino is set to drop to $11.4 million from $42.1 million. That and Cupertino may be required to return the money to the state that it received in previous years.

The audit and subsequent fines are set to reduce Cupertino's operation spending by millions. The city is expected to cut jobs, reduce local events, and reduce funding until things balance out -- which may not be until 2030.

Read on AppleInsider

RickDawg

More likely, California wants to distribute sales tax to the home tax district of the buyer. If Apple aggregates all sales to Californians in the Cupertino tax district, they are cutting the other tax districts in the state out of that one percent city, and local district taxes as well.

davidw

RickDawg said:

More likely, California wants to distribute sales tax to the home tax district of the buyer. If Apple aggregates all sales to Californians in the Cupertino tax district, they are cutting the other tax districts in the state out of that one percent city, and local district taxes as well.

Not of the "buyer", but the local tax district of where the online transaction took place. In CA, sales tax on online sales made inside the State is taxed at the rate of where the transaction took place and not of the buyer home location. It's no different than if a person living in SF drove down to the Apple Store in Cupertino and made a purchase. The sales tax on that purchase is based on Cupertino local sales tax, not the SF sale tax of the buyer's home district. Out of State online purchases are handle differently.

So the question is, are all CA online purchases handled inside Apple HQ or in Cupertino at all? Most likely not. Apple probably handle online sale transactions on sites outside of their HQ and Cupertino, but credited Cupertino with the sale. When in reality, the tax credit should be where Apple actually handled the transaction. It might be a warehouse in San Jose or Sacramento (Apple main CA distribution center is in Elk Grove).  I kind of doubt that Apple HQ is where they keep their stock of online products and they are shipped from there. If the purchase is shipped from the nearest Apple Store or Apple warehouse that have it in stock, then the sale tax should be base on the location of that Apple Store or warehouse and credited to those local districts. 

https://biz.crast.net/apples-local-tax-arrangement-with-hometown-comes-under-fire-2/

>At issue is the company’s treatment of online sales. Under California law, a local portion of the sales tax goes to the location where the transaction occurs, not the customer’s location.<

https://www.warehouseautomation.ca/news-notes-1/2020/10/9/apple-to-use-retail-stores-as-distribution-centers-for-faster-deliveries-8tj2z

AutigerMark

I kind of doubt that Apple HQ is where they keep their stock of online products and they are shipped from there. If the purchase is shipped from the nearest Apple Store or Apple warehouse that have it in stock, then the sale tax should be base on the location of that Apple Store or warehouse and credited to those local districts. 

The last 2 iphones I've purchased from apple.com have shipped to me direct from China.

get serious

So if the transaction took place on a server in Oregon there would be no Sales Tax? Or maybe on a server in unincorporated Inyo County, would that be where the tax was booked? What if a company booked their online sales on servers in multiple locations?
No Apple chose to book them based on their US headquarters and worked a tax cut from the city council. The rebate is a bit shady. The article makes it seem that Cupertino will be the one taking the hit so I hope Apple can find a way to hero them out.

chutzpah

Seems like a pretty dodgy deal in the first place.

davidw

get serious said:

So if the transaction took place on a server in Oregon there would be no Sales Tax? Or maybe on a server in unincorporated Inyo County, would that be where the tax was booked? What if a company booked their online sales on servers in multiple locations?
No Apple chose to book them based on their US headquarters and worked a tax cut from the city council. The rebate is a bit shady. The article makes it seem that Cupertino will be the one taking the hit so I hope Apple can find a way to hero them out.

That would be an out of State online transaction and the out of State entity, even if it's Apple, must collect sales tax based on the address of where the purchase is shipped to. Apple is only claiming that all in-State online transaction shipped to anywhere in CA, is taxed at Cupertino tax rate and credited to Cupertino.

The tax rebate deal Apple have with Cupertino might seem shady but is more common than one would think. Many Local and State government offer tax incentives for companies to build or set up operation there. For the local government, it is no different than offering property tax or payroll tax breaks, in order to get companies to build there. The thinking is that even with the tax break, the local government will be collecting more in taxes, than if they didn't build there at all. Plus the benefit of jobs and spending money for the local economy.

Amazon get property tax deals to build fulfillment centers warehouses in certain local counties, all the time. In SF, companies were given a payroll tax break if they set up their lease office space in a new area that is in very shady part of Downtown SF. With the promise of using the extra taxes collected from them to clean up the area. Twitter was one of the companies that took up that offer. Twitter did their part but SF government never used the extra taxes collected, to clean up that part of Downtown SF. Whole Foods (owned by Amazon) just closed their SF flagship store in that part of town, after being there for about 1 year. SF government have no interest in spending the taxes they collect as promised or to even benefit the citizens that pays the taxes. And yet, the local citizens keeps electing these politicians to run their city. 

The thing that makes this deal with Apple seem shady is that there was no way that Apple was ever going to move out of  Cupertino. So the tax rebate incentive was not to keep Apple in Cupertino. Getting $110 million with the 35% tax rebate (on the 1% sale tax collected) over 25 years is peanuts for Apple. But the remaining 65% is not peanuts for the local Cupertino. The question is ... did Apple offer the city of Cupertino to tax all CA online purchases as though the purchases were made in Cupertino, in return for a 35% rebate? Or did Cupertino offer to give Apple a 35% rebate if they were to tax all CA online transaction as though they were made from their  Cupertino HQ? Either way, it's the city of Cupertino that that had the final say in such a deal.

I remember a time when mail order and online order businesses only had to collect the State sales tax. They were not responsible for collecting any county or local taxes added to the State tax. The thinking that it would be way too difficult accounting wise for small businesses to look up and collect all the different county and local taxes added to the  State sales tax. But computers and database software solved that problem. I can google any city in the World and get their sales tax rate or VAT.

davidw

JP234 said:

AutigerMark said:

I kind of doubt that Apple HQ is where they keep their stock of online products and they are shipped from there. If the purchase is shipped from the nearest Apple Store or Apple warehouse that have it in stock, then the sale tax should be base on the location of that Apple Store or warehouse and credited to those local districts. 

The last 2 iphones I've purchased from apple.com have shipped to me direct from China.

Your understanding of how sales tax is levied is incorrect. Sales tax is charged at the rate of the destination (and paid to the taxing body there), not the point of sale. If you live in Chicago, you can't go to Oregon or Alaska and get a car with no sales tax. Same thing with Amazon or any online seller. Your shipping address dictates how much tax you pay.

Actually, one can travel to a State with no sales tax, make a purchase and pay no sales tax. Shoppers do it all the time. There are tour buses just for this purpose. But they are suppose to pay the use tax on those purchases when filing their State tax return. (in CA,  there's a "Use Tax" for taxes owe on purchases made out of State or online, where the sales tax paid was less than that of the CA sales tax.). Nearly all States with a sales tax, have a use tax.

https://www.usatoday.com/story/money/business/2017/11/22/cross-state-lines-shop-tax-free-black-friday/879886001/

https://www.shopify.com/blog/what-is-use-tax

Now with a car, the problem arises when it comes to registering that car in your home State. In CA, you will have to pay CA sales tax on that new car, before CA will register it. If you paid 4% State sales tax in another State, you owe CA another 3.25% in State sales tax. If you paid 0%, you owe CA 7.25% State sales tax. The only way around it is if you were a resident of the State with no sales tax, register the car under your name there and then move to CA and re-register the car. Even if you bought a used car from a private party, you owe CA sales tax on the purchase price, when registering that used car. Just because the private party is not responsible for collecting the sales tax and remitting it to the State, it doesn't mean the State will not make every effort to collect that sales tax from you. One of the reason why CA is the fifth largest economy in the World is because of how much money they make taxing its own citizens.

darkvader

get serious said:

So if the transaction took place on a server in Oregon there would be no Sales Tax? Or maybe on a server in unincorporated Inyo County, would that be where the tax was booked? What if a company booked their online sales on servers in multiple locations?
No Apple chose to book them based on their US headquarters and worked a tax cut from the city council. The rebate is a bit shady. The article makes it seem that Cupertino will be the one taking the hit so I hope Apple can find a way to hero them out.

It's not a bit shady, it's incredibly shady and should be illegal if it isn't.  Maybe that's what's going on, the state figured out that Cupertino is pulling some shady shit, and they're fixing it.

Apple and Cupertino should both be fined pretty heavily for it.

davidw

JP234 said:

davidw said:

JP234 said:

AutigerMark said:

I kind of doubt that Apple HQ is where they keep their stock of online products and they are shipped from there. If the purchase is shipped from the nearest Apple Store or Apple warehouse that have it in stock, then the sale tax should be base on the location of that Apple Store or warehouse and credited to those local districts. 

The last 2 iphones I've purchased from apple.com have shipped to me direct from China.

Your understanding of how sales tax is levied is incorrect. Sales tax is charged at the rate of the destination (and paid to the taxing body there), not the point of sale. If you live in Chicago, you can't go to Oregon or Alaska and get a car with no sales tax. Same thing with Amazon or any online seller. Your shipping address dictates how much tax you pay.

Actually, one can travel to a State with no sales tax, make a purchase and pay no sales tax. Shoppers do it all the time. There are tour buses just for this purpose. But they are suppose to pay the use tax on those purchases when filing their State tax return. (in CA,  there's a "Use Tax" for taxes owe on purchases made out of State or online, where the sales tax paid was less than that of the CA sales tax.). Nearly all States with a sales tax, have a use tax.

https://www.usatoday.com/story/money/business/2017/11/22/cross-state-lines-shop-tax-free-black-friday/879886001/

https://www.shopify.com/blog/what-is-use-tax

Now with a car, the problem arises when it comes to registering that car in your home State. In CA, you will have to pay CA sales tax on that new car, before CA will register it. If you paid 4% State sales tax in another State, you owe CA another 3.25% in State sales tax. If you paid 0%, you owe CA 7.25% State sales tax. The only way around it is if you were a resident of the State with no sales tax, register the car under your name there and then move to CA and re-register the car. Even if you bought a used car from a private party, you owe CA sales tax on the purchase price, when registering that used car. Just because the private party is not responsible for collecting the sales tax and remitting it to the State, it doesn't mean the State will not make every effort to collect that sales tax from you. One of the reason why CA is the fifth largest economy in the World is because of how much money they make taxing its own citizens.

Everyone wants the benefits taxes pay for, but no one wants to pay taxes themselves. This oxymoronic conundrum is why Greece's economy melted down. It's why the French are rioting in the street even as I write. The ability of wealthy liberal and conservative Americans to legally pay little or no taxes is  the reason American society is polarizing to left-right extremes. Liberal Warren Buffet's effective income tax rate is 0.1%. On their 2020 income tax returns, ultra-conservative Donald Trump and his wife Melania paid no federal income taxes and claimed a refund of $5.47 million. They're far from alone:

https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax

That article belongs up there with MAGA disinformation and Covid denier and anti-vaxxer. It's pure BS. If you were to calculate your effective income tax rate that includes  your "wealth", you too would probably have an effective tax rate of less than 1%.  Imagine if the value of your home, stock portfolio, IRA savings, rental properties, etc. were included in your "income", when calculating your effective tax rate on the income taxes you paid on any given year.  Using wealth when comparing the wealthy income effective tax rate to that of the effective tax rate of the middle class that only includes income, is only a fair comparison if you're a Progressive Socialist like Sen. E. Warren or Sen B. Sanders.

Sen. Warren and Sen. Sanders wants a wealth tax where the wealthy are taxed every year, on how much wealth they have over a certain amount.

https://www.cnbc.com/2021/03/01/elizabeth-warren-bernie-sanders-propose-3percent-wealth-tax-on-billionaires.html

The effective tax rate is how much income taxes you paid vs how much income you made in a year. It is not calculated using your wealth, that you have accumulated or unrealized gains in your stock portfolio. Wealth is not income. Neither are unrealized gains.  Buffett effective tax rate for most years is closer to 15%. And this would be true for all the wealthy in the 1%. The vast majority of the 1%  income are from long term capital gains and dividends, not salary and wages. Long term capital gains  and qualified dividends are taxed at 15% and 20%. (The wealthy might also have to pay a 3.8% medicare tax surcharge on their capital gains income.)

No one is required to pay more income taxes than they are legally required to. Just because there are people that have a problem with wealthy people that they think have too much wealth, it doesn't mean that they should have to pay more income taxes than they legally have to. If you could legally reduce your income taxes to zero, you would and would be a fool not to.

BTW- I did a quick calculation of my effective tax rate for my 2023 income, including both Fed and State income taxes and it came out to about 10%. (A good percentage of my income is from dividend and just the standard deduction.) I then did the same, but included the value of my stock portfolio as income (like they did in Buffett case) and my "true effective tax rate" came out to be .12%. And my stock portfolio is no where near the tens of billions of dollars that Buffett's portfolio is worth. 

entropys

RickDawg said:

More likely, California wants to distribute sales tax to the home tax district of the buyer. If Apple aggregates all sales to Californians in the Cupertino tax district, they are cutting the other tax districts in the state out of that one percent city, and local district taxes as well.

It would be where the sale occurred. In this case the online sale occurred in Cupertino where the company is based.  

Nah, what’s going on is, as the greatest prime minister of the 20th century said “ the trouble with socialism is it eventually runs out of Other Peoples’ Money.”

so the State of California is always looking for new pots of OPM. The larger the better. And to drive more businesses east of course.

davidw

JP234 said:

davidw said:

JP234 said:

davidw said:

JP234 said:

AutigerMark said:

I kind of doubt that Apple HQ is where they keep their stock of online products and they are shipped from there. If the purchase is shipped from the nearest Apple Store or Apple warehouse that have it in stock, then the sale tax should be base on the location of that Apple Store or warehouse and credited to those local districts. 

The last 2 iphones I've purchased from apple.com have shipped to me direct from China.

Your understanding of how sales tax is levied is incorrect. Sales tax is charged at the rate of the destination (and paid to the taxing body there), not the point of sale. If you live in Chicago, you can't go to Oregon or Alaska and get a car with no sales tax. Same thing with Amazon or any online seller. Your shipping address dictates how much tax you pay.

Actually, one can travel to a State with no sales tax, make a purchase and pay no sales tax. Shoppers do it all the time. There are tour buses just for this purpose. But they are suppose to pay the use tax on those purchases when filing their State tax return. (in CA,  there's a "Use Tax" for taxes owe on purchases made out of State or online, where the sales tax paid was less than that of the CA sales tax.). Nearly all States with a sales tax, have a use tax.

https://www.usatoday.com/story/money/business/2017/11/22/cross-state-lines-shop-tax-free-black-friday/879886001/

https://www.shopify.com/blog/what-is-use-tax

Now with a car, the problem arises when it comes to registering that car in your home State. In CA, you will have to pay CA sales tax on that new car, before CA will register it. If you paid 4% State sales tax in another State, you owe CA another 3.25% in State sales tax. If you paid 0%, you owe CA 7.25% State sales tax. The only way around it is if you were a resident of the State with no sales tax, register the car under your name there and then move to CA and re-register the car. Even if you bought a used car from a private party, you owe CA sales tax on the purchase price, when registering that used car. Just because the private party is not responsible for collecting the sales tax and remitting it to the State, it doesn't mean the State will not make every effort to collect that sales tax from you. One of the reason why CA is the fifth largest economy in the World is because of how much money they make taxing its own citizens.

Everyone wants the benefits taxes pay for, but no one wants to pay taxes themselves. This oxymoronic conundrum is why Greece's economy melted down. It's why the French are rioting in the street even as I write. The ability of wealthy liberal and conservative Americans to legally pay little or no taxes is  the reason American society is polarizing to left-right extremes. Liberal Warren Buffet's effective income tax rate is 0.1%. On their 2020 income tax returns, ultra-conservative Donald Trump and his wife Melania paid no federal income taxes and claimed a refund of $5.47 million. They're far from alone:

https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax

That article belongs up there with MAGA disinformation and Covid denier and anti-vaxxer. It's pure BS. If you were to calculate your effective income tax rate that includes  your "wealth", you too would probably have an effective tax rate of less than 1%.  Imagine if the value of your home, stock portfolio, IRA savings, rental properties, etc. were included in your "income", when calculating your effective tax rate on the income taxes you paid on any given year.  Using wealth when comparing the wealthy income effective tax rate to that of the effective tax rate of the middle class that only includes income, is only a fair comparison if you're a Progressive Socialist like Sen. E. Warren or Sen B. Sanders.

Sen. Warren and Sen. Sanders wants a wealth tax where the wealthy are taxed every year, on how much wealth they have over a certain amount.

https://www.cnbc.com/2021/03/01/elizabeth-warren-bernie-sanders-propose-3percent-wealth-tax-on-billionaires.html

The effective tax rate is how much income taxes you paid vs how much income you made in a year. It is not calculated using your wealth, that you have accumulated or unrealized gains in your stock portfolio. Wealth is not income. Neither are unrealized gains.  Buffett effective tax rate for most years is closer to 15%. And this would be true for all the wealthy in the 1%. The vast majority of the 1%  income are from long term capital gains and dividends, not salary and wages. Long term capital gains  and qualified dividends are taxed at 15% and 20%. (The wealthy might also have to pay a 3.8% medicare tax surcharge on their capital gains income.)

No one is required to pay more income taxes than they are legally required to. Just because there are people that have a problem with wealthy people that they think have too much wealth, it doesn't mean that they should have to pay more income taxes than they legally have to. If you could legally reduce your income taxes to zero, you would and would be a fool not to.

BTW- I did a quick calculation of my effective tax rate for my 2023 income, including both Fed and State income taxes and it came out to about 10%. (A good percentage of my income is from dividend and just the standard deduction.) I then did the same, but included the value of my stock portfolio as income (like they did in Buffett case) and my "true effective tax rate" came out to be .12%. And my stock portfolio is no where near the tens of billions of dollars that Buffett's portfolio is worth. 

"If you were to calculate your effective income tax rate that includes  your "wealth", you too would probably have an effective tax rate of less than 1%." You speak the truth to me. But it's only true on a case-by-case basis, isn't it? There are people with enough accumulated wealth that they can determine how much tax they pay by setting salaries they determine themselves. If Warren Buffet can live on $100,000.00 per year, that's what he pays income tax on. If Jeff Bezos wants a $500 million mansion, do you think he sells appreciated Amazon shares and pays taxes at the top rate? No, never. All rich people can use their accumulated wealth as collateral for loans. Then they pay only the interest every year, and if it's a principal residence, deduct it on their taxes. When the principal becomes due, they just refinance and repeat. The goal being to die owing the entire principal amount, while enjoying the use of the property for decades. There's even a term for it: "Borrow now, pay back never."

Then there are people right here in America who have zero accumulated wealth and rely entirely on their income. They have no access to loans other than revolving credit card debt, because they have bad or no credit. If they try to buy a car, they pay interest rates of up to 40%.

So I believe you're off track insinuating that this is extremist right wing BS. It's simply the truth, and the opposite of right-wing extremist lying points. BTW, I detest Donald Trump and pity his army of the white, low educated, low income, ill-informed masses who can set aside facts in evidence, and believe that a Manhattan plutocrat, born with a diamond spoon in his mouth, who $hits on gold-plated toilet seats, and flies between country clubs he owns in a private jet, is the perfect candidate to represent their interests! All because he has a talent for telling those unfortunates what they WANT to believe, rather than the unpalatble truth. "It's not YOUR fault you're a failure: it's the immigrants! It's the gays and the trans! It's the blacks, the browns, the yellows! It's the libtards! It's George Soros and the Jews!"

So what? That's what I did for over the 20 years, to help accumulate the wealth I have now in my stock portfolio. I have never paid finance interest on any of my credit cards. I have always used my home equity line of credit and stock margin borrowing account (when needed) to pay off my CC every month. The interest on my home equity line of credit and margin account is less than 1/2 of that of financing a CC debt. Plus I get to use the CC company money for about a month and a half .... interest free. And the interest on my home equity line of credit and margin account are tax deductible (if itemizing).  I could have easily paid off my CC every month by selling some of my AAPL stock every so often, but why? Doing the math (for nearly every year I've owned AAPL), the shares of AAPL that I didn't sell have generated way more money over the years, than what it cost me in the 6%-9% interest to borrow the money.  (Now this is not true for all my stocks but AAPL (because of the splits and how much it has increased in value) makes up the vast majority of my holdings now.). 

Here's an article detailing Bezo AMZN sale every year. I really don't think he need to take out a loan to buy anything. BTW- Bezo have never ever gotten any more shares of AMZN that what he acquired when AMZN IPO. Over the years when he was CEO of Amazon, he was only drawing about a $100K salary. All the wealth he has now is due to AMZN increasing in value and what he still hold of his original shares at IPO. (But he did lose a big chunk of his holding to pay off his divorce settlement.)

https://www.forbes.com/sites/rachelsandler/2021/06/24/heres-how-much-money-jeff-bezos-has-reaped-from-selling-amazon-stock/?sh=1ac8384389ae

The bottom line is that the IRS do not tax wealth or unrealized gains, as income or on a "case by case" basis. And if they did (like if Sen. Warren and Sen. Sanders got their wishes) they still would not call the taxed wealth as ... "income". They would call it what it is, a "wealth tax" and that tax is not the same as an "income tax". But it is BS for anyone to claim that the ultra wealthy are some how taking undeserved advantage of the "system" by paying only a "true effective tax" rate of .01%, making up and using some criteria that their "wealth" should be lumped together as "income', when determining their "true" effective tax rate they pay every year. If the IRS only taxes income for income tax purposes, then only what the IRS determine as income should be used to calculate one's "true  effective tax" rate. Otherwise it's BS.  It doesn't matter if the person paying the taxes are wealthy, middle income or poor. 

BTW- I'm a little bit ticked off. I didn't know until after I sent in my tax returns the other day, that i had until Oct. 16 to file my returns. (I reside in one of the counties affected by the severe weather we had last winter. (Though I only got more water in garage, than usual because of it.)  I didn't find out until yesterday. I could have kept by money in my Schwab account for another 6 months and maybe gotten another $1 in interest.   

https://www.sfgate.com/bayarea/article/taxes-due-tuesday-3-california-counties-17900158.php

Highllini

RickDawg said:

More likely, California wants to distribute sales tax to the home tax district of the buyer. If Apple aggregates all sales to Californians in the Cupertino tax district, they are cutting the other tax districts in the state out of that one percent city, and local district taxes as well.

I'm going to be really pedantic here, but the local district where the goods are shipped is likely already getting it's share of the tax.  District taxes in CA are destination based.  Only the local city/county portion is origin based.  That's 1% that is already baked into the statewide 7.25% rate.  The additional rates are district taxes, which are destination based.