Since 1998, Apple has declared all of its online sales in California in Cupertino. This means that of Apple's 7.25 per cent sales tax, the local one per cent portion goes to the city. Then, under the same deal, Cupertino returns approximately one-third of this revenue to Apple. The idea is that Cupertino profits because it sees significantly greater sales tax revenue than it otherwise might, and Apple is laughing all the way to the bank.
However, the tax man is not keen on these deals and has concluded that it is dodgy as hell [DaH].
Cupertino Assistant City Manager Matt Morley said that the CDTFA has asked for that process to be corrected.
Cupertino is unhappy with it, particularly as it has to come up with $56.5 million, which the State says it owes and is just for April 2021 to June 2023. At the same time, the tax officials have decided that Apple must reimburse the state $20 million. This figure would then be reallocated to other areas of the state.
The city is appealing the ruling, and the appeal could take anywhere from seven to ten years. Even so, the Cupertino City Council has agreed to set aside $56.5 million to prepare for the potential future loss. If the CDTFA prevail, Cupertino's Morley said non-essential city services could be reduced or even cut. Annually, Cupertino would see a 73 per cent drop in sales tax revenues and have to cut almost a quarter of its operational costs.