Cupertino Settles With State in Apple Sales Tax-Sharing Fight

Apple Inc.'s home town of Cupertino, Calif., will get to keep millions in sales tax revenue it has received and anticipated through August of this year, in a settlement announced Thursday with the state Department of Tax and Fee Administration.

The deal resolves a dispute the city has fought since the department started an audit in late 2021 of the revenue derived from a deal on taxation of Apple’s online sales within California. Under a 26-year tax-sharing agreement with the city, Apple has treated all the in-state online purchases as having been made in Cupertino. A one-point portion of the state’s 7.25% sales tax has been assigned to the city, which returned 35% of the total collected to the company.

The tax department has been investigating the Cupertino deal and several others that cities have with big retailers including electronics giant Best Buy Inc. and home and kitchenware provider Williams-Sonoma Inc. The department’s position is that the retailers must show they actually participate in the transactions at the locations where they assign the sales.

Last year Cupertino allocated $56.5 million to repay the state and it has been taking cost-cutting measures to handle the cost and the anticipated loss of future tax-sharing revenue. By February, the amount in dispute had grown to $60.3 million.

In Thursday’s announcement, the city said it will be able to “keep the funds previously allocated and anticipated for receipt through August 2024 and avoid lengthy and costly litigation.” It didn’t specify a dollar amount and it didn’t name the Apple sharing agreement as the dispute at issue, though an accompanying FAQ included the question: “How does this affect the tax-sharing agreement that the City has with Apple?”

The city answered that the settlement agreement with the department “has no effect on the City’s tax-sharing agreement with any taxpayer.”