Cupertino wins a battle but loses the war over California's Apple tax ruling

AppleInsider

Apple's home city of Cupertino has been granted a win in a dispute with California over its tax dealings with the iPhone maker, but it's only for the short term.

Apple Park in Cupertino (Source: Apple)

In 2023, California state argued that Cupertino was profiting unfairly from how Apple paid tax there. Specifically, any sale of any kind in California was attributed to Cupertino, entirely leaving out other counties and jurisdictions.

As well as the clear benefit to Cupertino of getting the value of state-wide taxation, there was an advantage to Apple. Apple would pay 7.25% state sales tax, of which 1% would go to Cupertino -- and then Cupertino would pass over a third of that income right back to Apple.

Stating that California law requires that a portion of the sales tax goes to the location where the transaction actually took place, the state began an investigation. Now according to the San Jose Spotlight, the case has concluded with a ruling that helps out Cupertino in the short term.

The ruling is that Cupertino can keep the tax income it got from Apple from the point when the state's investigation began. But from 2025, the state will implement a new system to benefit all jurisdictions.

While this means Cupertino will lose out in future, being allowed to keep the revenues from 2023 to 2025 is a relief to the cut.

"This has definitely been really the best outcome that we could have envisioned," said Mayor Sheila Mohan. "It's been three years [since] this whole thing started, so we're basically happy with how it went."

That's because during the process, Cupertino had to separate its Apple tax income and set it aside. Reportedly, the Cupertino City Council set aside around $77.5 million from the 2024-2025 fiscal year, and it can now access those funds.

Given that the state's audit left the city with an approximately $15 million deficit, the ruling is a definite win. "The settlement provides a reprieve to the city and will keep us balanced for a little bit longer," said Interim Assistant City Manager Tina Kapoor.

Kapoor also said that the amount of money the city will lose in tax revenue from 2025 is currently being calculated and will be announced shortly.

While obviously significant to the city's finances, the California ruling does pale next to the EU's decision to force Apple to pay Ireland $14 billion in back taxes.



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y2an

I’m left scratching my head wondering how Cupertino could ever have pitched this or Apple ever signed on to it, surely this was a massive red flag for their auditors. It’s so obviously wrong and illegal. I’m very surprised to state didn’t try harder to claw back revenue due to other localities; perhaps it would have just been too hard compared with the benefit.

DAalseth

y2an said:

I’m left scratching my head wondering how Cupertino could ever have pitched this or Apple ever signed on to it, surely this was a massive red flag for their auditors. It’s so obviously wrong and illegal. I’m very surprised to state didn’t try harder to claw back revenue due to other localities; perhaps it would have just been too hard compared with the benefit.

Actually it reminds me a lot of the Irish deal Apple had. They lost out on that one too, so yeah this should have sent off alarms when it first was suggested. I wonder though, if Cupertino suggested it, or Apple. 

brianjo

Do all of the other companies doing business in Cupertino get a third of the sales tax charged given back to them??  That seems kind of insane.