The California Department of Tax and Fee Administration launched an audit of the arrangement in 2021, and Cupertino’s finance director is scheduled to explain the findings to the city council on Thursday. The upshot for Cupertino is that local tax revenues are expected to fall 73% this year.
Although Apple isn’t named in the city staff report, the company is Cupertino’s largest source of sales tax revenue. According to the audit, revenue will drop to $11.4 million in the current fiscal year from $42.1 million, and Cupertino may be required to return money to the state that it has received in previous years. The city may have to cut staff and other spending to cover the shortfall…
Apple treats all online purchases of products in the state of California as if they were made in Cupertino, setting aside the 1 percentage point local portion of the 7.25% state sales tax for its hometown. The arrangement applies to Apple’s online sales to consumers in the state, as well as transactions with other businesses in California, sales at its two retail stores in Cupertino, and use tax on the company’s own equipment purchases, city officials have said.
The company remits all sales tax it receives to the state tax department, which then allocates the local portion to Cupertino. The city passes on 35% of its total to Apple. Those payments to Apple have added up to $107.7 million since 1998, according to city payment records examined by Bloomberg Tax.
Even so, the sales tax revenue at issue in Cupertino is a small portion of the total taxes that Apple pays to California, the city and other jurisdictions.
