Vert well written article explaining how this benefits the richest company in the world and is bad for ordinary citizens. The sort of thing we should try and change, but is endemic.
This article is well written but it’s really more about sales tax being a regressive tax that hits lower income people worse than high income people, and is using the Apple example for name dropping clickbait since they sell within California and the tax code is very skewed for such large cases and their resident municipalities. It’s in no way an Apple thing but is instead a flawed California taxation thing.
> This article is well written but it’s really more about sales tax being a regressive tax that hits lower income people worse than high income people
No, while it mentions that issue, its mostly about the race-to-the-bottom opportunity for large corporations created by the ability of corporations to choose to assign the location of sale unrelated to where it actually occurred in any meaningful sense, and to leverage that to get kickbacks from local government
> and is using the Apple example for name dropping clickbait since they sell within California and the tax code is very skewed for such large cases and their resident municipalities.
No, its using the Apple deal as an example because it is by far the largest example of the issue it is highlighting.
I don't know about the largest example. Dell kicks back $30 million a year to the city of Round Rock in sales taxes (https://roundrockchamber.org/city-of-round-rock-prepares-as-...). As someone who lives near there, I appreciate the city being well-funded but it does strike me as somewhat unfair and sort of wonder if the Washington approach makes more sense (though it's a headache to implement).
> Dell kicks back $30 million a year to the city of Round Rock in sales taxes
Cupertino is expected to lose $30 million net revenue per year (not counting the 35% of the apple sales taxes that it kicks back to Apple) as a result of this deal being disallowed going forward.
Note that, though, the only reason this issue made the news is that corporations are not actually free to assign locations to transactions without restriction, its just that the California sales and use tax system (like many other tax systems) accepts filings as true until and unless something raises a question (or a random audit occurs), and then audits, and then issues findings, and it has audited here and found that the rules were broken.
Don't most municipalities charge lower / no-sales tax on essentials such as groceries, and higher sales tax on retail, alcohol sales, and restaurants, presumably things lower income people wouldn't be spending much on anyways? I know my state does not charge sales tax on groceries, and limits local municipalities to a maximum of 2%, but I admittedly don't know what the norm is in most states.
when i last interviewed at apple, the office i interviewed in was so far from the spaceship, it was almost in another city. apple seems to be occupying just about every office park built since the 1970s in cupertino.
also - those non-spaceship offices are awful, unreachable by transit, no access to food without driving, basically an Office Space type environment. gross.
Looking at the Vallco disaster there is certainly some room for improvement, but how many trillion dollar companies do you expect in a town of 58k people?
Sounds a bit like Japan's Furusato Nozei. This "hometown tax" allows taxpayers to choose where to send a portion of their tax payment, in order to benefit small regional towns that might otherwise be struggling with a shrinking tax base.
In order to thank and attract people to pay their Furusato Nozei to a particular town, the towns provide gifts as kickbacks, competing with each other by offering the best gifts. Usually it's something associated with the local area to which the tax is paid. But in order to prevent the gifts from getting too out of control, by law the gifts are limited to 30% of the value of the tax paid...
> Sounds a bit like Japan’s Furusato Nozei. This “hometown tax” allows taxpayers to choose where to send a portion of their tax payment, in order to benefit small regional towns that might otherwise be struggling with a shrinking tax base.
One somewhat significant difference is that the Apple/Cupertino thing is illegal, which is why it is being ended and getting news coverage.
I am confused. Apple made an agreement with a City. Both parties seem to benefit from the arrangement. I am not sure I see anything illegal here.
The Japanese "hometown tax" sounds rather intriguing though. I think it would be difficult to implement efficiently in the U.S. but I think it's a great idea none the less to help smaller towns with limited growth potential. Though I think work-from-home + cheaper cost of living will make small towns quite promising to live in today.
Imagine being able to have small farm for the price of a house in the city + city income. Easily do a bit of farming in the morning, remote work during day, finish up anything else the farm needs for the day, and you're set for a pretty nice life in my opinion.
> I am confused. Apple made an agreement with a City. Both parties seem to benefit from the arrangement. I am not sure I see anything illegal here.
The illegal part is where the reporting of locations of transactions by Apple, for which they get kickbacks from Cupertino, violates California state law on how location of transactions subject to sales tax are reported by reporting them as occurring at Apple HQ rather than where the goods involved in the specific transaction are located at the time of the transaction.
Alice and Bob making an agreement for Alice to forge documents so that Bob gets money that belongs to Clara and for which Bob provides a kickback to Alice may be a mutually beneficial agreement for Alice and Bob, but it is still illegal.
> In California, the local portion of collected sales tax goes to the location where the transaction took place, not the location of the customer. The corporation can designate where a given transaction has taken place, separate and apart from the underlying origin and destination realities.
I am sorry I'm just going of the linked article and I am sure I am missing some nuances here however it doesn't seem like what they've done is exactly illegal.
Alice and Bob agreeing the forge a document is illegal.
Bob agreeing to give Alice some money back that Bob collects from Alice's customers because otherwise Bob would get no money from Alice's customers doesn't appear to be illegal (yet). Of course Clara (the State) is free to change her positions on the matter.
For example set a limit on how much a city can charge sales tax.
> Tax Districts
The statewide tax rate is 7.25%. In most areas of California, local jurisdictions have added district taxes that increase the tax owed by a seller. Those district tax rates range from 0.10% to 1.00%. Some areas may have more than one district tax in effect. Sellers are required to report and pay the applicable district taxes for their taxable sales and purchases.
> I am sorry I'm just going of the linked article and I am sure I am missing some nuances here however it doesn't seem like what they've done is exactly illegal.
When the linked article says they “The corporation can designate where a given transaction has taken place, separate and apart from the underlying origin and destination realities" it is correct only in the extent that, say, you can report money you spent on narcotics and escort services as “charitable donations” on your federal tax returns, in that it is physically possible, but definitely not legal, to do it.
The entire reason this is in the news is that state sales tax authorities audited Apple’s sales tax reporting and found it out of line with the law.
I am still not seeing anything here explaining the actual illegality here. As far as I can tell, and it appears still to to be determined, Apple and the city in question are both operating within the law.
If anything it looks like the State is just now getting around to realizing that they foolishly left money on the table and now they want it.
As it is we have Thursday it looks like to find out the results of the audit.
Plus, bigger picture, what the city is being accused of doing to other cities, the the State's themselves already do to each other. Ask yourself why so many corporations are home in Delaware?
> I am still not seeing anything here explaining the actual illegality here.
The illegality is Apple assigning sales where the goods were not in Cupertino at the time of the transaction to Cupertino for sales tax purposes, to take maximize advantage of sales tax kickbacks offered by Cupertino, despite state law which says the location for sales tax is the location where the goods physically were at the time of the transaction.
> If anything it looks like the State is just now getting around to realizing that they foolishly left money on the table and now they want it.
The state gets the same share no matter where in the state the transaction is assigned for sales tax purposes. The entities losing out are other localities, not the State.
> The illegality is Apple assigning sales where the goods were not in Cupertino at the time of the transaction to Cupertino for sales tax purposes, to take maximize advantage of sales tax kickbacks offered by Cupertino, despite state law which says the location for sales tax is the location where the goods
physically were at the time of the transaction.
This directly contradicts what the article states.
> This directly contradicts what the article states.
No, it doesn’t.
It contradicts what you appear to have falsely inferred from the very vague writing in the article, and that false inference may be the intent of the vague writing, but it doesn’t contradict what the article actually says.
“In December 2021, the CDTFA notified the City that they were reviewing one of the taxpayers in the City. In May 2022, the CDTFA updated the City, saying they had asked the taxpayer for more tax returns. […] In March, the CDTFA verbally informed the City of their preliminary determination that tax dollars had been misallocated to the City, and they gave rough estimates of how much money the City might lose. The CDTFA said the City would get a letter with the final results of the review, including the actual amount of money that would be lost, in the next four to six months.”
So that tells us the issue is about “misallocation”. So, how are sales taxes supposed to be allocated? Here’s official information from the CDTFA, the agency responsible for sales and use taxes in California: https://www.cdtfa.ca.gov/industry/localanddistricttaxes.htm#...
“Regulation 1620, subdivision (a)(2)(A), states that participation in the transaction in any way by the in-state place of business is sufficient for the transaction to be subject to sales tax. However, to constitute participation, an activity must serve some real purpose and have some meaningful effect in the actual sales process and involve some genuine physical human interaction with the sale from that location.
“Generally, activities taking place after the sale has occurred are not participation in the sale. There are also activities that a retailer might conduct from a California location to support its operations that do not constitute participation in the sale for purposes of Regulation 1620, subdivision (a)(2)(A), including price setting, purchase of resale inventory, web design, and general marketing.
“Internet transactions are generally designed and intended to be processed online, without direct human intervention until the property is picked, packed, and shipped at the storage location. As such, a storage location is often the only place of business that participates in an Internet transaction. Activities related to creating and maintaining the automated online processes would generally be considered the type of support operations that do not constitute participation in any particular transaction. The location of the server where the website is hosted or maintained is also immaterial”
A. What you are describing here isn't illegal activity. You're describing the State determining that Apple incorrectly reported where the sales tax should go (no one is saying deliberately). Now the state is trying to remedy this.
B. From what I was gathering there's been a change in law regarding online sale tax in 2019 or so. Fair enough for the State to take a couple of years to audit and find compliance.
Doesn't really seem to be malicious actions between Apple and the city.
Additionally Apple is free to apeal here and say they did report their sales tax correctly.
> What you are describing here isn’t illegal activity.
Yes it is.
> You’re describing the State determining that Apple incorrectly reported where the sales tax should go
Failing to report as legally required is illegal.
> (no one is saying deliberately).
Sure, but that’s not germane.
> From what I was gathering there’s been a change in law regarding online sale tax in 2019 or so.
There was; mainly, from looking at the CDTFA information on sales tax (which calls out the 2019 changes) affecting sales through internet marketplaces and in some circumstances making the marketplace, rather than the seller-through-the-marketplace, the retailer for sales tax purposes, and requiring registration and use-tax collection by retailers in certain cases. The change doesn’t seem related to the Apple/Cupertino sales tax issue.
"It isn’t difficult to imagine these sorts of agreements giving rise to bidding wars between municipalities, each vying to offer the most generous kickbacks in exchange for a large corporation allocating its state sales to that locale."
Do we need to imagine? Hasn't this been common for decades?
In this case, we do need to imagine. It would be unreasonable to infer that there was such a bidding war, and the city with the company HQ in it happened to win.
>The agreement outlines that 35% of that local portion that is returned to Cupertino is handed by the city to Apple—to the tune of $107.7 million since 1998. California took notice and launched an audit.
So $4m a year?
>The Adopted Budget is budgeted at $130,587,325 and is funded by $130,244,157 in revenue.
So taxpayers are “missing out” on 3% of their budget in exchange for 65% of 1% of Apple’s online sales in California. How much does the city get in return for this deal? And, wouldn’t Apple just choose somewhere else to direct the funds otherwise?
Apple has to choose where to allocate the tax funds. That’s the law. That Cupertino offered the best deal for them is a quirk of the law, not a shady deal by Apple. As well: their headquarters are located there. It’s not like they shopped around for the best kickback deal by allocating it to some little town on the coast.
> Cupertino is facing a 73% reduction in local tax revenue. California is taking issue with the agreement and examining the extent to which the California purchases attributed to Cupertino are proper.
Err, what? There’s some math here there doesn’t add up. Did the article mean to say that Apple has contributed $107m per year since 1998 — so $2.6b? If so, Cupertino is facing a 96% reduction not 73%.
I must be missing something here. Could someone point me in the direction of the right math?
From the linked article[0] in the first paragraph:
> 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.
So I think the 73% number reflects whatever chagnes CDFTA are enforcing to take some of the online sales tax revenue away from Cupertino. Also from that other article, the $107m number appears to reflect total payments from Cupertino to Apple since 1998
> 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.
But TFA is very unclear about the specifics of the state-city-company revenue sharing...
Then why didn't some little podunk town elsewhere in California work out a deal more lucrative to Apple than what Cupertino offered? Clearly this has a lot to do with Apple's HQ location. The actual money is just a pittance.
Because that would have fucked up Steve's commute. Apple HQ wasn't picked based on how much they could drag out of the local government. Their lawyers, however, were.
> Did the article mean to say that Apple has contributed $107m per year since 1998
No, Apple has received $107 million rebated from Cupertino since 1998.
Cupertino has retained (since the rebate is 35% of the total, so the total is 65/35 of the rebate) $198 million since 1998, and initially received $305 million.
But while that is probably increasing over time, not sure where the 73% comes from, as that’s ~$94 million/year.
Hmm… More research:
It’s 73% of sales tax revenue, not total city revenue. Cupertino currently gets $42.1 million per year in sales tax revenue, the deal going away is expected to drop it to $11.4 million per year. (And there are expected to be fines and returns of past funds, on top of that.)
> Where that lands ethically, morally or legally is up to interpretation
Maybe if this was Alice in Wonderland. Apple knows the law and they hire responsible people to balance their books. If they prioritize fixing those rounding errors above the law, that is an objective failure. It is about as morally, ethically or legally interpretable as killing a politician you disagree with.
In Washington state they solved this problem by allocating the sales tax to the location of the customer for online sales. I remember having to implement it as a small business and it was a minor pain, but I assume the legislators mostly had Amazon in mind when they passed the law.
Before that was the case, sales tax only was to be collected if the company had a presence in that state. This was earlier in Amazon's history where they didn't have a warehouse everywhere and so many cases online sellers didn't collect sales tax.
In the event that you buy something from somewhere else and no sales tax is collected, a "use tax" is to be collected... and most people weren't reporting this. For example https://www.revenue.wi.gov/Pages/FAQS/ise-usetax.aspx
This hits states that have sales tax but no income tax hardest (Washington and Texas being the two that come to mind most readily).
Amazon was initially opposed to this previously but as they grew it became apparent that they would have a presence in each state and so were for it... as it adds costs to all the small companies to also properly collect sales tax for wherever they sell.
From the Wiki article:
> A year from the decision, nearly all states that collected sales tax had modified their laws to include interstate commerce taxes; however, in many of these states, the updated laws did not include any threshold limits on when such taxes can be collected. Small to medium businesses may find the cost of auditing their sales for each state to far outweigh the amount of tax actually owed and forgo the process; and similarly, states looking to collect these taxes may find the cost of prosecuting against the smaller business to outweigh the benefit. It is expected that a raft of lawsuits related to these new tax laws from South Dakota will occur from 2019 through 2023.
My comment was in the context of sales within the state, where both the seller and buyer are in the same state (same situation as the article about Apple in CA). Previously, WA was like CA apparently is today, where the sales tax for in state online sales was determined by the location of the seller.
I think this also happens with VAT in the EU. I pay the Finnish 24% VAT even if I order from Amazon.de (Germany has 19% VAT). Although as far as I understand, this does not apply to small online stores.
> Apple is receiving a kickback from the municipality for indicating that online sales to California residents are transacted in Cupertino. They’re not bringing customers to Cupertino—not physically, at least—but merely are choosing that city as where sales are made.
This is an openly illegal practice that is only possible by the collusion of judges. If judges accepted the totally fabricated reasons that companies provide for their behavior in murder cases, criminals could get out of prison by just arguing that "the victim shot himself from 10 meters away". You know that it is impossible, the judge knows that it is impossible, but as far as the judicial system accepts it then keeps you out of prison. That "sales" are all assigned to a very convenient city is the same case, an obvious lie that will not pass any accounting good practice but that tribunals accept to favor big corporations, usually for kickbacks.
Well, the law would have them allocate their sales tax for each transaction to the location “where the merchandise is physically located at the time the sale takes place.” [0]
That’s why Cupertino is losing the revenue: CDTFA audit Apple, and found they were misallocating transactions. The news is juicier, because they were getting kickbacks from the city of Cupertino for doing so, but if it were legal it wouldn’t even be in the news right now, the news came out of the arrangement being identified as illegal, not out of it existing.
> Its not like Apple is warehousing iphones somewhere waiting to be sold.
Apple in fact has multiple fulfillment warehouses in California and also about two years ago started using its retail stores as part of its fulfillment system for online orders.
Delivery times from China suck. (If it was selling goods from China, it would be required to collect and remit use tax on behalf of California customers rather than paying sales tax, and that's based on customer location, still not HQ or “wherever Apple gets the biggest kickback”.)
Apple has been shipping hardware directly from China for awhile now, but ya, sometimes they hit a fulfillment center, but is the hardware there at time of sale? Does it have to be in California rather than another state? Well, I’m sure Apple can figure this out, but it sounds like a poorly worded regulation to me.
China could always put their fulfillment centers in favorable tax districts (because that is definitely fungible, they just have to ship the products from there after they arrive from China). California should really just tax where the product is definitely going rather than same vague notion of where it is could come from.
> Does it have to be in California rather than another state?
If its not, they don’t pay California sales tax based on its location at the time of sale (but Apple meets the requirement too instead be required to collect and remit similar use taxes based on the California destination; in neither case, unless the applicable endpoint is in Cupertino, would that be Cupertino.)
> China could always put their fulfillment centers in favorable tax districts
I presume you mean “Apple” not “China”, but, sure, if they want to optimize sales/use tax rather than logistics and customer experience.
They could just have a centralized wherehouse for all California orders in Cupertino, if they want to make sure all their California sales tax is allocated there. Not sure they are willing yo do that for the current payment deal, and I’m not sure Cupertino would think that’s worth the revenue, either.
> California should really just tax where the product is definitely going rather than same vague notion of where it is could come from.
Where an item physically is when it is sold is not an “vague notion”
The point is that the goods don’t need to and are often not in California when they are sold to someone in California, so it really is a difficult law to apply.
But it sounds like California uses destination taxing in that case? So most of the time, wouldn’t Apple be stuck with that instead?
But no, the Californian law from the 1950s actually says location of sale, not where the physical goods being sold are located, so we avoid the goods being out of state at time of sale problem. I don’t think Apple is going to lose this case, and California just needs better laws.
I'm really confused by this claim, even before all of the bizarre comparison to murder.
Apple has to pick a city to allocate sales tax to. They are headquartered in Cupertino. And the "kickback" they receive is not in cash, but merely the ability to choose how some of that tax revenue is spent.
I'm willing to believe it's bad policy and should be changed, but I'm at a loss for how you're seeing it as "openly illegal", let alone comparable to some homicide fantasy.
> Apple has to pick a city to allocate sales tax to.
No, they have to report the location of the transaction, for which there are legal rules, which specify that the location of the transaction for sales tax is “where the merchandise is physically located at the time the sale takes place.” [0]
Apple chose, instead of following the law, to report the transactions as taking place in Cupertino irrespective of where the actual merchandise sold in the particular transaction was located. And received a kickback from Cupertino for doing it.
The reason this is in the news is because California’s sales tax authority conducted an audit of Apple’s sales taxes, and notified Cupertino that they are about to lose a whole lot of ongoing revenue and must pay a bunch back because of the illegal allocation.
"No, they have to report the location of the transaction, for which there are legal rules, which specify that the location of the transaction for sales tax is “where the merchandise is physically located at the time the sale takes place.”"
And if the merchandise is located in China at the time the sale takes place? What city do they pick then?
> And if the merchandise is located in China at the time the sale takes place?
Then the consumer owes use tax and the seller doesn’t owe sales tax, because its a sale from outside of California. This is also specified in the state tax information document posted upthread.
But Apple isn’t paying sales taxes in Cupertino for sales it isn’t required to pay any sales tax on in the first place. For the most part they deliver from their many California warehouses (and even retail stores), not China, for in-state orders.
Do you think California would accept a company like Apple not collecting the sales tax because the merchandise came from China? Any company doing online sales would just need to locate the merchandise across state lines.
> Do you think California would accept a company like Apple not collecting the sales tax because the merchandise came from China?
California sales tax collecting authority spells out in black and white that they are not to collect sales tax in that case, so I’m going to say “Yes”. (OTOH, they do have to collect the equivalent use tax, based on the location where the goods are delivered if they are, because of their other business circumstances – as Apple is – required to register with CDTFA and collect and remit use tax on behalf of customers. But, again, that’s both technically separate from sales tax and, more to the point, has a very specifically specified location which, again, Apple would not be legally free just to move to their HQ or some other location.)
Apple uses another legal entity, Cork, Ireland-based Apple Sales International (ASI) that asks Foxconn to produce a purchased device and to ship it directly to the country where it was ordered. This is part of a game called ¨transfer pricing¨, an OECD-approved legal procedure for multinational corporations to lower their overall average effective tax rate by creating a trans-jurisdiction network of company entities with patent/trademark cross-licensing contracts:
It is not just Apple. For example, this permits SIEMENS AG to claim they are headquartered in the low-tax village of Zug, Switzerland for tax purposes, despite the company´s Web pages state the giant has its HQ in Neuperlach Sued, part of Munich, Germany. Governments lose billions in taxes every year from transfer pricing.
> This is an openly illegal practice that is only possible by the collusion of judges.
No, its been possible because, like many taxing authority, California sales tax authorities accept the information provided by taxpayers initially, until they have reason not to (or the taxpayer gets selected for a random audit), and Apple wasn’t audited on this until recently. Its in the news now because of that audit, in which this was identified as illegal. Up until now, no judges have been involved (and unless the audit findings are challenged, no judges will be involved), so the collusion of judges has not be important in allowing this.
California, which has no geographical nexus to internet sales other than being the locale in which Apple is located, is complaining about the sales tax being paid to Cupertino which is in exactly the same logical position?
Not quite- Sales tax from sales by customers in California is being located to Cupertino. So if a customer in Fresno bought an iphone, that tax is allocated to Cupertino. Other states assess tax differently.
After that fresno customer buys an iphone and pays the tax to Cupertino, Cupertino gives apple 35% of that tax back effectively lowering their sales tax rate.
The question here is if the buyer is in Fresno and Apple's warehouse is in say Tracy then which counties and cities should be able to apply their sale taxes to the transaction.
Yes, but not quite: This is actually about the California x%. When you pay sales tax, there is a state/county/municipal tax that gets paid to the state, the county and the municipality where the customer is located. Municipal or county taxes may be zero or even, in rare occasions negative.¹
Then, the state portion has a fraction that gets allocated to a municipality (thanks to Prop 13, a lot of local funding has been shifted to getting granted from the state), which is generally going to be the municipality where the business is located.
These distinctions generally only come up for online transactions and some high-cost durable goods like automobiles (which is why there’s no benefit to buying your car in a different county—you’ll still pay the same tax).
⸻
1. Thanks to a prop 13 lawsuit, for a time in the 90s, the county tax (or was it city? I don’t remember now) for San Diego was actually -0.5% because it was judged that the county (city?) had illegally raised taxes and this was the method by which the judge determined that the taxes would be rebated.
> I thought this worked like a stack? i.e. California gets x%, Santa Clara County gets y% and Cupertino gets z% …
To the extent that is approximately correct, the issue here is that the Apple/Cupertino deal involves Apple apparently filing false paperwork to make Cupertino rather than the actual distribution site for the particular order the bottom of the stack, and is getting kickbacks from Cupertino out of the money effectively stolen from some other jurisdiction by that false reporting.
It took this many years for an article to be interesting enough to HN to be submitted...
Apple isn't the only company with this kind of deal, and California has been looking into them for years. For example, Williams-Sonoma is appealing a ruling against their deal with Shafter, also covered in Bloomberg Tax two years ago:
When I learned about the Jobs' car deal, I asked someone I knew in car sales about it. They said that most likely its a mundane 6 month lease that they were likely just repeatedly auto-renewing against the same vehicle until he chose to drive a different one, if at all.
Imagine as a non-billionaire/famous asking for such terms at purchase.
Ffs I was paying cash for a new car and they said they wanted to run my credit.. I said FU and had to threaten to leave if they wanted the sale, why run credit on a cash purchase?
But I don't expect that most dealers will give you a jobs-like deal? Or is this normal?
Thanks, I was led to believe all these years that he had some sort of weird loophole he was exploiting... and I always found that weird, like, he had enough money to buy a new car every day if he wanted, so I never understood the impetus.
It took this many years for CDTFA audit to be started, completed, and the city to be told it needs to end the program, which is what the article is ultimately about.
Given the total amount identified and the per-year current amount, the amount seems likely to have been small potatoes for most of the life of the program. In 1998, a lot more of the business was brick and mortar, and it was before even the iPod, much less the iPhone, was introduced.
I don't live in Cupertino, but it's right across the street (or several streets). I follow a lot of this on NextDoor.
Cupertino isn't some random city; it's where Apple has been since the beginning. They contribute massively to the traffic around here, and they could easily afford to buy the empty Vallco site and build housing for their employees, who could then walk to the Spaceship. Only now are they even talking about building teacher housing there.
Cupertino lets them get away with it because of all that money they're paying. I always thought a Chicago Move would be for the city to go to Tim Cook and say, looking around appreciatively at the Spaceship,
"Nice building you have here, Tim. What was it, five billion? Very nice. Be a shame if we had to close it down for health inspections."
>they could easily afford to buy the empty Vallco site and build housing for their employees, who could then walk to the Spaceship
You do know that the voters of Cupertino elected to their city council the person who posted on NextDoor that allowing Apple employees to live at Vallco would result in more high school prostitution right?
This is just a minor defect in democracy; representatives are chosen by people that already live there, so there is no strong electoral incentive to advocate for new residents. Sure, they will get more property tax revenue which pays for ... everything ... but, if you already have enough, you don't really want more. I don't think anyone in Cupertino is suffering from lack of government services, so there isn't a strong reason to vote in change.
I think people are also irrationally afraid that building new housing will drive down the price of their existing housing, but do we really see that happen? (Why do real estate prices always go up? Because people will be stubborn and not sell their home for less than they paid, unless there is a Detroit-like crisis, which Cupertino is definitely not in danger of. At that point, things like the federal prime rate are really what put a damper on housing prices, not Apple employees moving into apartments built on a vacant lot.)
To some extent, everyone is aware of these factors, which is why California said "enough is enough" and moved some control to the state level.
I know Cupertino is upscale but residents still get in their cars and use the roads to get to work right? Not every resident is independently wealthy.
Apple employees and contractors may contribute to the traffic by commuting from inside and outside of Cupertino to the office but does the company contribute "massively"?
People also clog up the roads going to all manner of jobs and also coming to Cupertino for one of its many big box stores.
Home Depot (and Trader Joe's and H-Mart) are just outside of Cupertino, in a trick that would otherwise look like gerrymandering since the border follows S De Anza Blvd and Prospect Rd to the south instead of jutting out to enclose those specific stores in San Jose's jurisdiction. There is, however a number of popular stores, including Whole Foods, Target as you mentioned, a 99-Ranch and a Safeway, and a JOANN Fabric and Crafts. There's also Apple's Infinite loop campus which isn't a big box store but does involve a lot of traffic, as well as De Anza College, the local community college which also involves a lot of traffic. I swear there used to be a Best Buy on that stretch of Stevens Creek, but that was too long ago for my memory, and Google's memory.
Complaining about people clogging up roads is some NextDoor level shit though.
Cupertino doesn't have those stores anymore since Vallco closed.
The city has been fighting Vallco redevelopment as hard and illegally as it can because the last thing they'll let Apple employees do is live in Cupertino. Only retirees and landlords allowed.
(People on the planning commission have directly said Apple employees are too poor to be allowed to live there, are men so will molest their daughters and hire prostitutes - meanwhile the locals who show up to meethings think they're too rich so will park their BMWs in front of their houses and attract crime, and will give them cancer by planting 5G cell phone towers.)
What’s the alternative? This seems like a non-issue as both Apple and Cupertino are just following the law as written.
A better article would be “big companies bring in more sales tax to the cities where they are located” and that seems as expected.
While imperfect, tax based on the location of purchase is most likely to be accurate. Would you tax where the person was physically located when they purchased, so vendors have to get customer geolocations at time of purchase? Where the data center is located so it depends what portion of the cloud was processing the db write? The residence of the customer so vendors have to know home address and non-california residents would pay no taxes?
This seems like the author is finally growing up and learning that taxes exist. I remember a friend called me when they got their first paycheck and said something like “hey, there’s like 45% missing” and they got to realize that taxes are substantial.
> This seems like a non-issue as both Apple and Cupertino are just following the law as written.
If they were following the law as written, they probably wouldn’t have been found out of compliance by a state audit based on compliance with the law as written.
I mean, its not impossible, state auditors aren’t infallible, but...
State officials disagree with each other all the time, they get corrected by courts all the time, etc.
A state audit is always going to be heavily biased toward state interests as opposed to corporate or local interests.
Laws aren't black and white and auditors make arbitary distinctions over gray areas all the time. Being found out of compliance by a state auditor isn't even remotely a sign that Apple and Cupertino weren't following the law -- especially when it's not like Apple cheaps out on its lawyers. It's simply that the auditor is challenging their interpretation of the law. Ultimately, a court would decide. And states lose in court all the time.
> The department has been auditing whether companies participate enough in online sales to assign them to cities with warehouses or offices.
This isn’t cut and dry the way you make it seem. This agreement is a common tactic and William’s Sonoma is apparently having the same issue with the state and is appealing.
100% of corporate revenue goes to the state and federal government. 0% to cities, and cities generate revenue to fund their budgets by levying property taxes on land owners.
This is on top of Oregon's already large income tax. Just hop over 30 minutes to Vancouver and its all gone though, if you're lucky enough to WFH or can otherwise situate yourself there. Then you can double dip your tax savings by avoiding sales tax by crossing over the bridge to shop :)
It's alot of tax. It was a shock to me when I moved here, though overall I don't regret.
I have discussed it at length as well. I haven't visited Vancouver proper yet though, and now that I guess I'm used to being taxed like this i've adjusted myself accordingly.
I'm honestly more worried about Oregon (and the Portland area specifically) becoming even more regressive with taxation. I think I'm kinda at my acceptable limit before I just move to Vancouver out of sheer protest.
The amount of money we pay to the state is mind boggling, and yet you see lack of investment everywhere you turn around. I was hoping, perhaps naively, that Portland would be like a better kept San Fransisco, but I was very wrong.
Yeah Portland's government, especially in the relatively recent past, is far from inspiring. I'm at the outskirts of the metro area, so I don't have to live with their policy choices or pay their extra taxes, and I'm glad for it. I don't drive into downtown anymore now that we permanently closed the office there, and when I do drive down for some reason I'm shocked by how rough it has gotten in many places.
Washington isn't out of the question, but I'll probably end up going farther. Like Colorado, perhaps. Staying in this area until my mom passes (sadly that will be within the next year or so), and then we're bailing.
Since you mention regressive taxation -- I remember that a few years ago, I recall that Oregon was the least regressive state while Washington was the most (all states being regressive overall). I think the ranking changes a bit year-by-year so that may no longer be true. For a software developer, it's better to be in Washington. I'm pretty sure it was Tax Foundation that had that info. Right now they put the overall rate almost identical between Oregon and Washington, though that doesn't account for how it changes based on income.
Technically you are supposed to report your purchases to Washington state and pay tax on them for things you buy in Oregon. Also, you are living in Vancouver, which isn't as cool as Portland.
The obscene homelessness situation in Portland is even more maddening knowing the tax situation now. Especially since it seems like a non-existent problem across the river in Vancouver.
Tax is a funny thing. I think I'd feel better if my taxes were actually visibly useful for the every day persons life. Like for Health care, for instance, or fixing the unhoused problems in the state, or maintaining the roads and sidewalks that seemingly always have potholes in them, etc.
I'd pay 10% more if the quality of life perception was there, but it feels like all that goes to nothing
> Would you tax where the person was physically located when they purchased, so vendors have to get customer geolocations at time of purchase?
Huh? These are online purchases that have a delivery address for physical deliveries, and a billing address as well in case it's digital goods or services.
Nobody needs to geolocate anything. And yes, most online sales tax across the country is precisely determined by the customer's address. California appears to be an exception here.
There's nothing meaningfully less accurate about the customer's location. If anything, it's far more meaningful and consistent, since I might make a purchase from a company based in Delaware, using their website hosted in Virginia, and half the order is shipped from a warehouse in Pennsylvania, while the other half is shipped from a warehouse in New Jersey. Consumers are much more "locatable" than corporations.
>Huh? These are online purchases that have a delivery address for physical deliveries, and a billing address as well in case it's digital goods or services.
Huh? So if I live and work in Buffalo and go into New York City to buy a sweater, the sales tax on my sweater goes to Buffalo? That's where it's going to be taken to and my billing address for the card I used to purchase the sweater. Or would the sales tax go to where the sale is made?
That's not an online purchase, that's a physical purchase. Those have always been taxed at the single location of the transaction, because buyer and seller are in the same place.
My point was that there's nothing inaccurate about a delivery address or billing address. The parent was writing as if this were something confusing to determine.
> In California, the local portion of collected sales tax goes to the location where the transaction took place, not the location of the customer.
Well that's clearly the root of the issue here.
Why?
Generally, across the country, for online purchases you pay sales tax for whatever the delivery address is.
Seems rather bizarre that California allocates the local portion of sales tax of online sales to the business location rather than customer location, no?
I work for a small business in California that ships all our products (no retail) and we are definitely required to charge sales tax based on the location of the customer, not our business.
Most online sources say the rule in California is to use the ship-from (not HQ) address for city, county, and state sales tax and the ship-to address for special district taxes; so if those sources are correct, this is just Apple misusing the HQ address as if it were the ship-from address for tax purposes to steal taxes from elsewhere for Cupertino in exchange for a kickback from Cupertino.
Given that, insofar as there is a local infrastructure cost imposed by supporting the capacity for the transaction to occur it occurs predominantly a the ship-from address, paying city, county, and the locally-redirected portion of state sales taxes there makes some sense.
It's not just Apple making this kind of deal with California cities regarding sales taxes from online sales within state:
> Best Buy has been in Dinuba for 17 years, employing around 370 workers, but seven years ago it became even more vital to this 25,000-population city. That’s when the Dinuba facility was designated as Best Buy’s sole point of e-commerce sales in California, meaning that any state resident making an online purchase would pay the local sales tax on their transaction to Dinuba, not the city where they live. That prompted Dinuba — facing a $1.9 million budget deficit — to enter into a 40-year agreement to share those tax proceeds with Best Buy.
> It’s an arrangement that a handful of other cities have set up, including Cupertino with Apple Inc., Ontario with QVC Inc. and Nike Inc., Shafter with Williams-Sonoma Inc., San Bruno with Walmart Inc. Typically, cities commit to send half or more of the local sales tax paid on e-commerce sales in California right back to the companies, for decades, in the name of economic development.
In the age of internet sales it goes from 'just tax the receiving locale (POS?)' or 'just tax the company locale' to dealing with multiple entities (headquarters, warehousing, staffing, customers) all in different locations co-mingled across different state jurisdictions. Sales tax is also awfully regressive.
Why don't you read the article which contains an explanation of why sales tax is regressive.
> Sales tax is already notoriously regressive—that is, it places a larger burden on low-income taxpayers. There are no brackets or marginal rates in sales tax. Whether you make $100 or $100 million, your sales tax in Cupertino is 9.125% of the taxable purchase. The result is the portion of individual income that goes to paying sales tax is invariably higher in lower income individuals than it is in higher income folks.
So, in the tax system, the terms describe percentages of income/assets taken from the taxes. Progressive taxes charge a higher percentage from richer people than poorer people. Flat taxes aim to take the same percentage from everyone. Regressive taxes charge poorer people a higher percentage of their income.
People say sales taxes are regressive because the cost of things that people buy usually increases slower than the income to support it. Very poor people spend (over) 100% of their income. Richer people do not - they save for retirement and other things. And if they want to buy toys, they might be very expensive toys (eg a yacht). It is worth going to a place without the sales tax to make a large purchase.
"$107.7 million since 1998" --that's peanuts to Apple, right?
It may be more to the state of California or local municipalities who would be getting the money (actually 107/35% == 305 million... still over 25 years though!).
But if Apple ends up getting dinged over this, they're really going to feel like they made a mistake, this was not much benefit to be worth even bad press.
Maybe the Apple of 1998 was hungrier, and it just stayed there.
Or are those numbers wrong? Does that number seem low for 35% of the entire CA sales tax owed by Apple over 25 years?
> It isn’t difficult to imagine these sorts of agreements giving rise to bidding wars between municipalities, each vying to offer the most generous kickbacks in exchange for a large corporation allocating its state sales to that locale.
> This benefits no one save for the corporation with the deepest pockets.
I am maybe missing something? Surely it would also benefit the winning municipality, which is why they would want to bid on it.
What an incredibly corrupt system. The state should not be letting people change where they pay tax and it absolutely should not be giving people tax back.
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[ 3.2 ms ] story [ 208 ms ] threadNo, while it mentions that issue, its mostly about the race-to-the-bottom opportunity for large corporations created by the ability of corporations to choose to assign the location of sale unrelated to where it actually occurred in any meaningful sense, and to leverage that to get kickbacks from local government
> and is using the Apple example for name dropping clickbait since they sell within California and the tax code is very skewed for such large cases and their resident municipalities.
No, its using the Apple deal as an example because it is by far the largest example of the issue it is highlighting.
Cupertino is expected to lose $30 million net revenue per year (not counting the 35% of the apple sales taxes that it kicks back to Apple) as a result of this deal being disallowed going forward.
when i last interviewed at apple, the office i interviewed in was so far from the spaceship, it was almost in another city. apple seems to be occupying just about every office park built since the 1970s in cupertino.
also - those non-spaceship offices are awful, unreachable by transit, no access to food without driving, basically an Office Space type environment. gross.
Of course they're unreachable by transit, that might cause crime! That'd never be acceptable to the average 800 year old Cupertino resident.
In order to thank and attract people to pay their Furusato Nozei to a particular town, the towns provide gifts as kickbacks, competing with each other by offering the best gifts. Usually it's something associated with the local area to which the tax is paid. But in order to prevent the gifts from getting too out of control, by law the gifts are limited to 30% of the value of the tax paid...
One somewhat significant difference is that the Apple/Cupertino thing is illegal, which is why it is being ended and getting news coverage.
The Japanese "hometown tax" sounds rather intriguing though. I think it would be difficult to implement efficiently in the U.S. but I think it's a great idea none the less to help smaller towns with limited growth potential. Though I think work-from-home + cheaper cost of living will make small towns quite promising to live in today.
Imagine being able to have small farm for the price of a house in the city + city income. Easily do a bit of farming in the morning, remote work during day, finish up anything else the farm needs for the day, and you're set for a pretty nice life in my opinion.
The illegal part is where the reporting of locations of transactions by Apple, for which they get kickbacks from Cupertino, violates California state law on how location of transactions subject to sales tax are reported by reporting them as occurring at Apple HQ rather than where the goods involved in the specific transaction are located at the time of the transaction.
Alice and Bob making an agreement for Alice to forge documents so that Bob gets money that belongs to Clara and for which Bob provides a kickback to Alice may be a mutually beneficial agreement for Alice and Bob, but it is still illegal.
I am sorry I'm just going of the linked article and I am sure I am missing some nuances here however it doesn't seem like what they've done is exactly illegal.
Alice and Bob agreeing the forge a document is illegal.
Bob agreeing to give Alice some money back that Bob collects from Alice's customers because otherwise Bob would get no money from Alice's customers doesn't appear to be illegal (yet). Of course Clara (the State) is free to change her positions on the matter.
For example set a limit on how much a city can charge sales tax.
> Tax Districts
The statewide tax rate is 7.25%. In most areas of California, local jurisdictions have added district taxes that increase the tax owed by a seller. Those district tax rates range from 0.10% to 1.00%. Some areas may have more than one district tax in effect. Sellers are required to report and pay the applicable district taxes for their taxable sales and purchases.
https://www.cdtfa.ca.gov/taxes-and-fees/sales-use-tax-rates....
When the linked article says they “The corporation can designate where a given transaction has taken place, separate and apart from the underlying origin and destination realities" it is correct only in the extent that, say, you can report money you spent on narcotics and escort services as “charitable donations” on your federal tax returns, in that it is physically possible, but definitely not legal, to do it.
The entire reason this is in the news is that state sales tax authorities audited Apple’s sales tax reporting and found it out of line with the law.
https://www.eastbaytimes.com/2023/04/13/apples-local-tax-arr...
If anything it looks like the State is just now getting around to realizing that they foolishly left money on the table and now they want it.
As it is we have Thursday it looks like to find out the results of the audit.
Plus, bigger picture, what the city is being accused of doing to other cities, the the State's themselves already do to each other. Ask yourself why so many corporations are home in Delaware?
The illegality is Apple assigning sales where the goods were not in Cupertino at the time of the transaction to Cupertino for sales tax purposes, to take maximize advantage of sales tax kickbacks offered by Cupertino, despite state law which says the location for sales tax is the location where the goods physically were at the time of the transaction.
> If anything it looks like the State is just now getting around to realizing that they foolishly left money on the table and now they want it.
The state gets the same share no matter where in the state the transaction is assigned for sales tax purposes. The entities losing out are other localities, not the State.
This directly contradicts what the article states.
No, it doesn’t.
It contradicts what you appear to have falsely inferred from the very vague writing in the article, and that false inference may be the intent of the vague writing, but it doesn’t contradict what the article actually says.
I have gone beyond the article to understand the actual facts here. For instance, here’s the official city page on the issue: https://www.cupertino.org/our-city/departments/finance/cdtfa...
“In December 2021, the CDTFA notified the City that they were reviewing one of the taxpayers in the City. In May 2022, the CDTFA updated the City, saying they had asked the taxpayer for more tax returns. […] In March, the CDTFA verbally informed the City of their preliminary determination that tax dollars had been misallocated to the City, and they gave rough estimates of how much money the City might lose. The CDTFA said the City would get a letter with the final results of the review, including the actual amount of money that would be lost, in the next four to six months.”
So that tells us the issue is about “misallocation”. So, how are sales taxes supposed to be allocated? Here’s official information from the CDTFA, the agency responsible for sales and use taxes in California: https://www.cdtfa.ca.gov/industry/localanddistricttaxes.htm#...
“Regulation 1620, subdivision (a)(2)(A), states that participation in the transaction in any way by the in-state place of business is sufficient for the transaction to be subject to sales tax. However, to constitute participation, an activity must serve some real purpose and have some meaningful effect in the actual sales process and involve some genuine physical human interaction with the sale from that location.
“Generally, activities taking place after the sale has occurred are not participation in the sale. There are also activities that a retailer might conduct from a California location to support its operations that do not constitute participation in the sale for purposes of Regulation 1620, subdivision (a)(2)(A), including price setting, purchase of resale inventory, web design, and general marketing.
“Internet transactions are generally designed and intended to be processed online, without direct human intervention until the property is picked, packed, and shipped at the storage location. As such, a storage location is often the only place of business that participates in an Internet transaction. Activities related to creating and maintaining the automated online processes would generally be considered the type of support operations that do not constitute participation in any particular transaction. The location of the server where the website is hosted or maintained is also immaterial”
B. From what I was gathering there's been a change in law regarding online sale tax in 2019 or so. Fair enough for the State to take a couple of years to audit and find compliance.
Doesn't really seem to be malicious actions between Apple and the city.
Additionally Apple is free to apeal here and say they did report their sales tax correctly.
Yes it is.
> You’re describing the State determining that Apple incorrectly reported where the sales tax should go
Failing to report as legally required is illegal.
> (no one is saying deliberately).
Sure, but that’s not germane.
> From what I was gathering there’s been a change in law regarding online sale tax in 2019 or so.
There was; mainly, from looking at the CDTFA information on sales tax (which calls out the 2019 changes) affecting sales through internet marketplaces and in some circumstances making the marketplace, rather than the seller-through-the-marketplace, the retailer for sales tax purposes, and requiring registration and use-tax collection by retailers in certain cases. The change doesn’t seem related to the Apple/Cupertino sales tax issue.
Deliberately avoiding paying tax is illegal. Apple didn't avoid paying tax. They just reported where the local tax should go incorrectly.
The State then took Apples word and gave too much to the city.
State inefficiency allows this. If existing laws haven't been changed to effect this thenthe State was negligent in failing to audit shit for decades.
Do we need to imagine? Hasn't this been common for decades?
So $4m a year?
>The Adopted Budget is budgeted at $130,587,325 and is funded by $130,244,157 in revenue.
So taxpayers are “missing out” on 3% of their budget in exchange for 65% of 1% of Apple’s online sales in California. How much does the city get in return for this deal? And, wouldn’t Apple just choose somewhere else to direct the funds otherwise?
Apple has to choose where to allocate the tax funds. That’s the law. That Cupertino offered the best deal for them is a quirk of the law, not a shady deal by Apple. As well: their headquarters are located there. It’s not like they shopped around for the best kickback deal by allocating it to some little town on the coast.
> Cupertino is facing a 73% reduction in local tax revenue. California is taking issue with the agreement and examining the extent to which the California purchases attributed to Cupertino are proper.
Err, what? There’s some math here there doesn’t add up. Did the article mean to say that Apple has contributed $107m per year since 1998 — so $2.6b? If so, Cupertino is facing a 96% reduction not 73%.
I must be missing something here. Could someone point me in the direction of the right math?
> 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.
So I think the 73% number reflects whatever chagnes CDFTA are enforcing to take some of the online sales tax revenue away from Cupertino. Also from that other article, the $107m number appears to reflect total payments from Cupertino to Apple since 1998
> 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.
But TFA is very unclear about the specifics of the state-city-company revenue sharing...
[0]: https://news.bloomberglaw.com/daily-tax-report-state/apples-...
Ding! nailed it.
These sweetheart deals exist because they know they are in competition with others and just want to capture a piece of it or risk losing it all.
No, Apple has received $107 million rebated from Cupertino since 1998.
Cupertino has retained (since the rebate is 35% of the total, so the total is 65/35 of the rebate) $198 million since 1998, and initially received $305 million.
But while that is probably increasing over time, not sure where the 73% comes from, as that’s ~$94 million/year.
Hmm… More research:
It’s 73% of sales tax revenue, not total city revenue. Cupertino currently gets $42.1 million per year in sales tax revenue, the deal going away is expected to drop it to $11.4 million per year. (And there are expected to be fines and returns of past funds, on top of that.)
https://appleinsider.com/articles/23/04/13/california-wants-...
These two things aren't incompatible with each other.
> So $4m a year?
A $2tn company shouldn't be concerned with losing out on $4m.
No need to defend a $2tn company. It's okay to right-size this error.
Where that lands ethically, morally or legally is up to interpretation by the relevant people and jurisdictions.
Maybe if this was Alice in Wonderland. Apple knows the law and they hire responsible people to balance their books. If they prioritize fixing those rounding errors above the law, that is an objective failure. It is about as morally, ethically or legally interpretable as killing a politician you disagree with.
In the event that you buy something from somewhere else and no sales tax is collected, a "use tax" is to be collected... and most people weren't reporting this. For example https://www.revenue.wi.gov/Pages/FAQS/ise-usetax.aspx
This hits states that have sales tax but no income tax hardest (Washington and Texas being the two that come to mind most readily).
This changed in 2018 with South Dakota vs Wayfair - https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf
https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.
Amazon was initially opposed to this previously but as they grew it became apparent that they would have a presence in each state and so were for it... as it adds costs to all the small companies to also properly collect sales tax for wherever they sell.
From the Wiki article:
> A year from the decision, nearly all states that collected sales tax had modified their laws to include interstate commerce taxes; however, in many of these states, the updated laws did not include any threshold limits on when such taxes can be collected. Small to medium businesses may find the cost of auditing their sales for each state to far outweigh the amount of tax actually owed and forgo the process; and similarly, states looking to collect these taxes may find the cost of prosecuting against the smaller business to outweigh the benefit. It is expected that a raft of lawsuits related to these new tax laws from South Dakota will occur from 2019 through 2023.
You can see how it actually works here: https://dor.wa.gov/taxes-rates/retail-sales-tax/sales-and-us...
This is an openly illegal practice that is only possible by the collusion of judges. If judges accepted the totally fabricated reasons that companies provide for their behavior in murder cases, criminals could get out of prison by just arguing that "the victim shot himself from 10 meters away". You know that it is impossible, the judge knows that it is impossible, but as far as the judicial system accepts it then keeps you out of prison. That "sales" are all assigned to a very convenient city is the same case, an obvious lie that will not pass any accounting good practice but that tribunals accept to favor big corporations, usually for kickbacks.
That’s why Cupertino is losing the revenue: CDTFA audit Apple, and found they were misallocating transactions. The news is juicier, because they were getting kickbacks from the city of Cupertino for doing so, but if it were legal it wouldn’t even be in the news right now, the news came out of the arrangement being identified as illegal, not out of it existing.
[0] https://www.cdtfa.ca.gov/formspubs/pub109/
So in China? This is confusing. Its not like Apple is warehousing iphones somewhere waiting to be sold.
Apple in fact has multiple fulfillment warehouses in California and also about two years ago started using its retail stores as part of its fulfillment system for online orders.
Delivery times from China suck. (If it was selling goods from China, it would be required to collect and remit use tax on behalf of California customers rather than paying sales tax, and that's based on customer location, still not HQ or “wherever Apple gets the biggest kickback”.)
China could always put their fulfillment centers in favorable tax districts (because that is definitely fungible, they just have to ship the products from there after they arrive from China). California should really just tax where the product is definitely going rather than same vague notion of where it is could come from.
If its not, they don’t pay California sales tax based on its location at the time of sale (but Apple meets the requirement too instead be required to collect and remit similar use taxes based on the California destination; in neither case, unless the applicable endpoint is in Cupertino, would that be Cupertino.)
> China could always put their fulfillment centers in favorable tax districts
I presume you mean “Apple” not “China”, but, sure, if they want to optimize sales/use tax rather than logistics and customer experience.
They could just have a centralized wherehouse for all California orders in Cupertino, if they want to make sure all their California sales tax is allocated there. Not sure they are willing yo do that for the current payment deal, and I’m not sure Cupertino would think that’s worth the revenue, either.
> California should really just tax where the product is definitely going rather than same vague notion of where it is could come from.
Where an item physically is when it is sold is not an “vague notion”
But it sounds like California uses destination taxing in that case? So most of the time, wouldn’t Apple be stuck with that instead?
But no, the Californian law from the 1950s actually says location of sale, not where the physical goods being sold are located, so we avoid the goods being out of state at time of sale problem. I don’t think Apple is going to lose this case, and California just needs better laws.
I'm really confused by this claim, even before all of the bizarre comparison to murder.
Apple has to pick a city to allocate sales tax to. They are headquartered in Cupertino. And the "kickback" they receive is not in cash, but merely the ability to choose how some of that tax revenue is spent.
I'm willing to believe it's bad policy and should be changed, but I'm at a loss for how you're seeing it as "openly illegal", let alone comparable to some homicide fantasy.
No, they have to report the location of the transaction, for which there are legal rules, which specify that the location of the transaction for sales tax is “where the merchandise is physically located at the time the sale takes place.” [0]
Apple chose, instead of following the law, to report the transactions as taking place in Cupertino irrespective of where the actual merchandise sold in the particular transaction was located. And received a kickback from Cupertino for doing it.
The reason this is in the news is because California’s sales tax authority conducted an audit of Apple’s sales taxes, and notified Cupertino that they are about to lose a whole lot of ongoing revenue and must pay a bunch back because of the illegal allocation.
[0] https://www.cdtfa.ca.gov/formspubs/pub109/
And if the merchandise is located in China at the time the sale takes place? What city do they pick then?
Then the consumer owes use tax and the seller doesn’t owe sales tax, because its a sale from outside of California. This is also specified in the state tax information document posted upthread.
But Apple isn’t paying sales taxes in Cupertino for sales it isn’t required to pay any sales tax on in the first place. For the most part they deliver from their many California warehouses (and even retail stores), not China, for in-state orders.
California sales tax collecting authority spells out in black and white that they are not to collect sales tax in that case, so I’m going to say “Yes”. (OTOH, they do have to collect the equivalent use tax, based on the location where the goods are delivered if they are, because of their other business circumstances – as Apple is – required to register with CDTFA and collect and remit use tax on behalf of customers. But, again, that’s both technically separate from sales tax and, more to the point, has a very specifically specified location which, again, Apple would not be legally free just to move to their HQ or some other location.)
https://taxjustice.net/faq/what-is-transfer-pricing/#:~:text....
https://curia.europa.eu/juris/document/document.jsf?text=&do...
https://en.wikipedia.org/wiki/Apple%27s_EU_tax_dispute
https://scholar.google.de/scholar?as_ylo=2019&q=oecd+transfe...
It is not just Apple. For example, this permits SIEMENS AG to claim they are headquartered in the low-tax village of Zug, Switzerland for tax purposes, despite the company´s Web pages state the giant has its HQ in Neuperlach Sued, part of Munich, Germany. Governments lose billions in taxes every year from transfer pricing.
No, its been possible because, like many taxing authority, California sales tax authorities accept the information provided by taxpayers initially, until they have reason not to (or the taxpayer gets selected for a random audit), and Apple wasn’t audited on this until recently. Its in the news now because of that audit, in which this was identified as illegal. Up until now, no judges have been involved (and unless the audit findings are challenged, no judges will be involved), so the collusion of judges has not be important in allowing this.
After that fresno customer buys an iphone and pays the tax to Cupertino, Cupertino gives apple 35% of that tax back effectively lowering their sales tax rate.
Then, the state portion has a fraction that gets allocated to a municipality (thanks to Prop 13, a lot of local funding has been shifted to getting granted from the state), which is generally going to be the municipality where the business is located.
These distinctions generally only come up for online transactions and some high-cost durable goods like automobiles (which is why there’s no benefit to buying your car in a different county—you’ll still pay the same tax).
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1. Thanks to a prop 13 lawsuit, for a time in the 90s, the county tax (or was it city? I don’t remember now) for San Diego was actually -0.5% because it was judged that the county (city?) had illegally raised taxes and this was the method by which the judge determined that the taxes would be rebated.
To the extent that is approximately correct, the issue here is that the Apple/Cupertino deal involves Apple apparently filing false paperwork to make Cupertino rather than the actual distribution site for the particular order the bottom of the stack, and is getting kickbacks from Cupertino out of the money effectively stolen from some other jurisdiction by that false reporting.
Saratoga native... everyone knew this, that guy Jobs would buy a new car every six months just to avoid a DMV visit..
You think that master of the masters of the con cant play a lowly municipality built on orchards into a tax haven?
It took this many years for an article to be interesting enough to HN to be submitted...
Apple isn't the only company with this kind of deal, and California has been looking into them for years. For example, Williams-Sonoma is appealing a ruling against their deal with Shafter, also covered in Bloomberg Tax two years ago:
https://news.bloombergtax.com/daily-tax-report-state/william...
This is the most probable scenario
Imagine as a non-billionaire/famous asking for such terms at purchase.
Ffs I was paying cash for a new car and they said they wanted to run my credit.. I said FU and had to threaten to leave if they wanted the sale, why run credit on a cash purchase?
But I don't expect that most dealers will give you a jobs-like deal? Or is this normal?
It took this many years for CDTFA audit to be started, completed, and the city to be told it needs to end the program, which is what the article is ultimately about.
Given the total amount identified and the per-year current amount, the amount seems likely to have been small potatoes for most of the life of the program. In 1998, a lot more of the business was brick and mortar, and it was before even the iPod, much less the iPhone, was introduced.
Cupertino isn't some random city; it's where Apple has been since the beginning. They contribute massively to the traffic around here, and they could easily afford to buy the empty Vallco site and build housing for their employees, who could then walk to the Spaceship. Only now are they even talking about building teacher housing there.
Cupertino lets them get away with it because of all that money they're paying. I always thought a Chicago Move would be for the city to go to Tim Cook and say, looking around appreciatively at the Spaceship,
"Nice building you have here, Tim. What was it, five billion? Very nice. Be a shame if we had to close it down for health inspections."
Edited: what are they going to do, rent out the Spaceship for low-income housing? I don't think there's enough plumbing.
You do know that the voters of Cupertino elected to their city council the person who posted on NextDoor that allowing Apple employees to live at Vallco would result in more high school prostitution right?
https://twitter.com/HousingValley/status/1154781703262498816
plus ça change, plus c'est la même chose
I think people are also irrationally afraid that building new housing will drive down the price of their existing housing, but do we really see that happen? (Why do real estate prices always go up? Because people will be stubborn and not sell their home for less than they paid, unless there is a Detroit-like crisis, which Cupertino is definitely not in danger of. At that point, things like the federal prime rate are really what put a damper on housing prices, not Apple employees moving into apartments built on a vacant lot.)
To some extent, everyone is aware of these factors, which is why California said "enough is enough" and moved some control to the state level.
Apple employees and contractors may contribute to the traffic by commuting from inside and outside of Cupertino to the office but does the company contribute "massively"?
People also clog up the roads going to all manner of jobs and also coming to Cupertino for one of its many big box stores.
and you live where?
I count two: Target and Home Depot.
Complaining about people clogging up roads is some NextDoor level shit though.
The city has been fighting Vallco redevelopment as hard and illegally as it can because the last thing they'll let Apple employees do is live in Cupertino. Only retirees and landlords allowed.
(People on the planning commission have directly said Apple employees are too poor to be allowed to live there, are men so will molest their daughters and hire prostitutes - meanwhile the locals who show up to meethings think they're too rich so will park their BMWs in front of their houses and attract crime, and will give them cancer by planting 5G cell phone towers.)
A better article would be “big companies bring in more sales tax to the cities where they are located” and that seems as expected.
While imperfect, tax based on the location of purchase is most likely to be accurate. Would you tax where the person was physically located when they purchased, so vendors have to get customer geolocations at time of purchase? Where the data center is located so it depends what portion of the cloud was processing the db write? The residence of the customer so vendors have to know home address and non-california residents would pay no taxes?
This seems like the author is finally growing up and learning that taxes exist. I remember a friend called me when they got their first paycheck and said something like “hey, there’s like 45% missing” and they got to realize that taxes are substantial.
If they were following the law as written, they probably wouldn’t have been found out of compliance by a state audit based on compliance with the law as written.
I mean, its not impossible, state auditors aren’t infallible, but...
A state audit is always going to be heavily biased toward state interests as opposed to corporate or local interests.
Laws aren't black and white and auditors make arbitary distinctions over gray areas all the time. Being found out of compliance by a state auditor isn't even remotely a sign that Apple and Cupertino weren't following the law -- especially when it's not like Apple cheaps out on its lawyers. It's simply that the auditor is challenging their interpretation of the law. Ultimately, a court would decide. And states lose in court all the time.
The state gets the same share no matter where in the state the transaction is assigned.
> Laws aren't black and white
Some are quite black and white, some are less so.
This isn’t cut and dry the way you make it seem. This agreement is a common tactic and William’s Sonoma is apparently having the same issue with the state and is appealing.
[1] https://news.bloomberglaw.com/daily-tax-report-state/apples-...
100% of corporate revenue goes to the state and federal government. 0% to cities, and cities generate revenue to fund their budgets by levying property taxes on land owners.
It's alot of tax. It was a shock to me when I moved here, though overall I don't regret.
I'm honestly more worried about Oregon (and the Portland area specifically) becoming even more regressive with taxation. I think I'm kinda at my acceptable limit before I just move to Vancouver out of sheer protest.
The amount of money we pay to the state is mind boggling, and yet you see lack of investment everywhere you turn around. I was hoping, perhaps naively, that Portland would be like a better kept San Fransisco, but I was very wrong.
Washington isn't out of the question, but I'll probably end up going farther. Like Colorado, perhaps. Staying in this area until my mom passes (sadly that will be within the next year or so), and then we're bailing.
Since you mention regressive taxation -- I remember that a few years ago, I recall that Oregon was the least regressive state while Washington was the most (all states being regressive overall). I think the ranking changes a bit year-by-year so that may no longer be true. For a software developer, it's better to be in Washington. I'm pretty sure it was Tax Foundation that had that info. Right now they put the overall rate almost identical between Oregon and Washington, though that doesn't account for how it changes based on income.
Two professional software engineers, married and making $300k and raising 3 kids are extremely likely to notice an extra $2.5k in taxes.
I remember making $25k and talking with my coworker making $60k saying how all their financial needs must be met because they make so much money.
Perspectives vary, but beware thinking that no one cares about money.
I'd pay 10% more if the quality of life perception was there, but it feels like all that goes to nothing
Huh? These are online purchases that have a delivery address for physical deliveries, and a billing address as well in case it's digital goods or services.
Nobody needs to geolocate anything. And yes, most online sales tax across the country is precisely determined by the customer's address. California appears to be an exception here.
There's nothing meaningfully less accurate about the customer's location. If anything, it's far more meaningful and consistent, since I might make a purchase from a company based in Delaware, using their website hosted in Virginia, and half the order is shipped from a warehouse in Pennsylvania, while the other half is shipped from a warehouse in New Jersey. Consumers are much more "locatable" than corporations.
Huh? So if I live and work in Buffalo and go into New York City to buy a sweater, the sales tax on my sweater goes to Buffalo? That's where it's going to be taken to and my billing address for the card I used to purchase the sweater. Or would the sales tax go to where the sale is made?
My point was that there's nothing inaccurate about a delivery address or billing address. The parent was writing as if this were something confusing to determine.
Well that's clearly the root of the issue here.
Why?
Generally, across the country, for online purchases you pay sales tax for whatever the delivery address is.
Seems rather bizarre that California allocates the local portion of sales tax of online sales to the business location rather than customer location, no?
There are... a lot of rates: https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx
Given that, insofar as there is a local infrastructure cost imposed by supporting the capacity for the transaction to occur it occurs predominantly a the ship-from address, paying city, county, and the locally-redirected portion of state sales taxes there makes some sense.
> Best Buy has been in Dinuba for 17 years, employing around 370 workers, but seven years ago it became even more vital to this 25,000-population city. That’s when the Dinuba facility was designated as Best Buy’s sole point of e-commerce sales in California, meaning that any state resident making an online purchase would pay the local sales tax on their transaction to Dinuba, not the city where they live. That prompted Dinuba — facing a $1.9 million budget deficit — to enter into a 40-year agreement to share those tax proceeds with Best Buy.
> It’s an arrangement that a handful of other cities have set up, including Cupertino with Apple Inc., Ontario with QVC Inc. and Nike Inc., Shafter with Williams-Sonoma Inc., San Bruno with Walmart Inc. Typically, cities commit to send half or more of the local sales tax paid on e-commerce sales in California right back to the companies, for decades, in the name of economic development.
https://www.bloomberg.com/news/features/2023-02-23/e-commerc...
Because it consumes a greater marginal share of income at lower income levels, which is the definition of a regressive tax.
> Sales tax is already notoriously regressive—that is, it places a larger burden on low-income taxpayers. There are no brackets or marginal rates in sales tax. Whether you make $100 or $100 million, your sales tax in Cupertino is 9.125% of the taxable purchase. The result is the portion of individual income that goes to paying sales tax is invariably higher in lower income individuals than it is in higher income folks.
People say sales taxes are regressive because the cost of things that people buy usually increases slower than the income to support it. Very poor people spend (over) 100% of their income. Richer people do not - they save for retirement and other things. And if they want to buy toys, they might be very expensive toys (eg a yacht). It is worth going to a place without the sales tax to make a large purchase.
It may be more to the state of California or local municipalities who would be getting the money (actually 107/35% == 305 million... still over 25 years though!).
But if Apple ends up getting dinged over this, they're really going to feel like they made a mistake, this was not much benefit to be worth even bad press.
Maybe the Apple of 1998 was hungrier, and it just stayed there.
Or are those numbers wrong? Does that number seem low for 35% of the entire CA sales tax owed by Apple over 25 years?
> This benefits no one save for the corporation with the deepest pockets.
I am maybe missing something? Surely it would also benefit the winning municipality, which is why they would want to bid on it.