16 ms·

Apple’s agreement with Cupertino

159 points by tldrthelaw 4y ago

brodouevencode 4y ago
A marketing piece for a flat tax.
Synaesthesia 4y ago
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.
jjtheblunt 4y ago
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.
- ghiculescu 4y ago
  Yeah it seems like this would be an issue no matter which city Apple chose.
- dragonwriter 4y ago
  > 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.
  - jjtheblunt 4y ago
    That’s what i said, but better emphasis on the weird taxation rule allowing choice of point of online sale.
  - matthewfcarlson 4y ago
    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-comptroller-menaces-their-dell-deal/ 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).
    - dragonwriter 4y ago
      > 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.
  - dragonwriter 4y ago
    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.
- dimitrios1 4y ago
  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.
ghiculescu 4y ago
Cupertino forgot an important rule of business: never have all your revenue come from one customer.
- astrodust 4y ago
  Apple is not the only significant company in Cupertino.
  - justizin 4y ago
    okay then who else? 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.
    - deleted 4y ago
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    - astrange 4y ago
      Amazon, TrendMicro, Norton, Seagate, Panasonic used to be in Cupertino (just from names I remember on signs). HPE/Agilent still is. Of course they're unreachable by transit, that might cause crime! That'd never be acceptable to the average 800 year old Cupertino resident.
- twelve40 4y ago
  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?
Reason077 4y ago
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...
- jefftk 4y ago
  Patrick has a great piece on this https://www.kalzumeus.com/2018/10/19/japanese-hometown-tax/ https://www.kalzumeus.com/2018/10/19/japanese-hometown-tax/
- dragonwriter 4y ago
  > 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.
  - iamerroragent 4y ago
    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.
CharlesW 4y ago
"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?
- hedora 4y ago
  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.
35208654 4y ago
>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?
- deleted 4y ago
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- kristjansson 4y ago
  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... [0]: https://news.bloomberglaw.com/daily-tax-report-state/apples-local-tax-arrangement-with-hometown-comes-under-fire https://news.bloomberglaw.com/daily-tax-report-state/apples-...
TheTon 4y ago
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.
- shagie 4y ago
  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 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://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc 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.
  - TheTon 4y ago
    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. You can see how it actually works here: https://dor.wa.gov/taxes-rates/retail-sales-tax/sales-and-use-tax-tools https://dor.wa.gov/taxes-rates/retail-sales-tax/sales-and-us...
hourago 4y ago
> 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.
- YawningAngel 4y ago
  Apple is headquartered in Cupertino, where would you have them allocate their sales if not there?
  - schoubey 4y ago
    The place where the customer placed the online order from.
  - dragonwriter 4y ago
    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. [0] https://www.cdtfa.ca.gov/formspubs/pub109/ https://www.cdtfa.ca.gov/formspubs/pub109/
    - seanmcdirmid 4y ago
deleted 4y ago
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NovemberWhiskey 4y ago
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?
- wrenky 4y ago
  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.
  - NovemberWhiskey 4y ago
    I thought this worked like a stack? i.e. California gets x%, Santa Clara County gets y% and Cupertino gets z% ...
    - khuey 4y ago
      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.
    - dhosek 4y ago
      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.
samstave 4y ago
it took this many years for an article? 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?
- Kon-Peki 4y ago
  > it took this many years for an article? 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/williams-sonoma-tax-deal-with-one-city-leaves-others-crying-sham https://news.bloombergtax.com/daily-tax-report-state/william...
  - samstave 4y ago
    interestingly enough, there are a few goog execs who landed at willaims-sonoma...
- Hamuko 4y ago
  Wasn't Jobs' Mercedes-Benz technically a lease? Because that probably made slightly more financial sense than to outright buy one every 180 days.
  - no_wizard 4y 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. This is the most probable scenario
    - samstave 4y ago
      Cool, so is that deal available to 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?
deleted 4y ago
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AlbertCory 4y ago
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."
- funkyjazz 4y ago
  "Ok say goodbye to $2B in annual tax revenue, we're moving to Redwood City!"
  - AlbertCory 4y ago
    An empty threat. Edited: what are they going to do, rent out the Spaceship for low-income housing? I don't think there's enough plumbing.
    - neximo64 4y ago
      They could move it.
      - AlbertCory 4y ago
        (picturing a trailer on 101 with a "Wide Load" sign on the back.)
        sharedbeans 4y ago
        [flagged]
        4y ago
prepend 4y ago
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.
- dragonwriter 4y ago
  > 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...
  - crazygringo 4y ago
    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.
    - dragonwriter 4y ago
      > A state audit is always going to be heavily biased toward state interests 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.
crazygringo 4y ago
> 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?
- ac29 4y ago
  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.
  - skybrian 4y ago
    Is that state or local sales tax?
    - ac29 4y ago
      Sales tax is remitted to the state, but has both state and local components. There are... a lot of rates: https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx
- dragonwriter 4y ago
  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.
drewda 4y ago
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. https://www.bloomberg.com/news/features/2023-02-23/e-commerce-sales-tax-deals-flow-to-only-some-california-cities https://www.bloomberg.com/news/features/2023-02-23/e-commerc...
boredumb 4y ago
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.
- didip 4y ago
  Why sales tax is regressive? I keep hearing this but I don't understand why it is regressive.
  - dragonwriter 4y ago
    > Why sales tax is regressive? Because it consumes a greater marginal share of income at lower income levels, which is the definition of a regressive tax.
  - kccqzy 4y ago
    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.
  - HWR_14 4y ago
    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.
jrochkind1 4y ago
"$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?
causi 4y ago
I don't understand how sweetheart deals between cities or even states and companies are remotely legal under the Equal Protection Clause.
wilg 4y ago
> 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.
MagicMoonlight 4y ago
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.

159 points by tldrthelaw 4y ago

A marketing piece for a flat tax.

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.

jjtheblunt 4y ago

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.

ghiculescu 4y ago
Yeah it seems like this would be an issue no matter which city Apple chose.
dragonwriter 4y ago
> 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.
- jjtheblunt 4y ago
  That’s what i said, but better emphasis on the weird taxation rule allowing choice of point of online sale.
- matthewfcarlson 4y ago
  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-comptroller-menaces-their-dell-deal/ 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).
  - dragonwriter 4y ago
    > 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.
- dragonwriter 4y ago
  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.
dimitrios1 4y ago
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.

ghiculescu 4y ago

Cupertino forgot an important rule of business: never have all your revenue come from one customer.

astrodust 4y ago
Apple is not the only significant company in Cupertino.
- justizin 4y ago
  okay then who else? 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.
  - deleted 4y ago
    [deleted]
  - astrange 4y ago
    Amazon, TrendMicro, Norton, Seagate, Panasonic used to be in Cupertino (just from names I remember on signs). HPE/Agilent still is. Of course they're unreachable by transit, that might cause crime! That'd never be acceptable to the average 800 year old Cupertino resident.
twelve40 4y ago
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?

Reason077 4y ago

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...

jefftk 4y ago
Patrick has a great piece on this https://www.kalzumeus.com/2018/10/19/japanese-hometown-tax/ https://www.kalzumeus.com/2018/10/19/japanese-hometown-tax/
dragonwriter 4y ago
> 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.
- iamerroragent 4y ago
  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.

CharlesW 4y ago

"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?

hedora 4y ago
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.

35208654 4y ago

>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?

deleted 4y ago
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kristjansson 4y ago
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... [0]: https://news.bloomberglaw.com/daily-tax-report-state/apples-local-tax-arrangement-with-hometown-comes-under-fire https://news.bloomberglaw.com/daily-tax-report-state/apples-...

TheTon 4y ago

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.

shagie 4y ago
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 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://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc 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.
- TheTon 4y ago
  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. You can see how it actually works here: https://dor.wa.gov/taxes-rates/retail-sales-tax/sales-and-use-tax-tools https://dor.wa.gov/taxes-rates/retail-sales-tax/sales-and-us...

hourago 4y ago

> 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.

YawningAngel 4y ago
Apple is headquartered in Cupertino, where would you have them allocate their sales if not there?
- schoubey 4y ago
  The place where the customer placed the online order from.
- dragonwriter 4y ago
  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. [0] https://www.cdtfa.ca.gov/formspubs/pub109/ https://www.cdtfa.ca.gov/formspubs/pub109/
  - seanmcdirmid 4y ago

deleted 4y ago

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NovemberWhiskey 4y ago

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?

wrenky 4y ago
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.
- NovemberWhiskey 4y ago
  I thought this worked like a stack? i.e. California gets x%, Santa Clara County gets y% and Cupertino gets z% ...
  - khuey 4y ago
    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.
  - dhosek 4y ago
    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.

samstave 4y ago

it took this many years for an article? 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?

Kon-Peki 4y ago
> it took this many years for an article? 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/williams-sonoma-tax-deal-with-one-city-leaves-others-crying-sham https://news.bloombergtax.com/daily-tax-report-state/william...
- samstave 4y ago
  interestingly enough, there are a few goog execs who landed at willaims-sonoma...
Hamuko 4y ago
Wasn't Jobs' Mercedes-Benz technically a lease? Because that probably made slightly more financial sense than to outright buy one every 180 days.
- no_wizard 4y 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. This is the most probable scenario
  - samstave 4y ago
    Cool, so is that deal available to 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?

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AlbertCory 4y ago

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."

funkyjazz 4y ago
"Ok say goodbye to $2B in annual tax revenue, we're moving to Redwood City!"
- AlbertCory 4y ago
  An empty threat. Edited: what are they going to do, rent out the Spaceship for low-income housing? I don't think there's enough plumbing.
  - neximo64 4y ago
    They could move it.
    - AlbertCory 4y ago
      (picturing a trailer on 101 with a "Wide Load" sign on the back.)
      - sharedbeans 4y ago
        [flagged]
      - 4y ago

prepend 4y ago

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.

dragonwriter 4y ago
> 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...
- crazygringo 4y ago
  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.
  - dragonwriter 4y ago
    > A state audit is always going to be heavily biased toward state interests 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.

crazygringo 4y ago

> 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?

ac29 4y ago
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.
- skybrian 4y ago
  Is that state or local sales tax?
  - ac29 4y ago
    Sales tax is remitted to the state, but has both state and local components. There are... a lot of rates: https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx
dragonwriter 4y ago
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.

drewda 4y ago

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. https://www.bloomberg.com/news/features/2023-02-23/e-commerce-sales-tax-deals-flow-to-only-some-california-cities https://www.bloomberg.com/news/features/2023-02-23/e-commerc...

boredumb 4y ago

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.

didip 4y ago
Why sales tax is regressive? I keep hearing this but I don't understand why it is regressive.
- dragonwriter 4y ago
  > Why sales tax is regressive? Because it consumes a greater marginal share of income at lower income levels, which is the definition of a regressive tax.
- kccqzy 4y ago
  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.
- HWR_14 4y ago
  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.

jrochkind1 4y ago

"$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?

causi 4y ago

I don't understand how sweetheart deals between cities or even states and companies are remotely legal under the Equal Protection Clause.

wilg 4y ago

> 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.

MagicMoonlight 4y ago

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.