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Apple’s tax agreement with its hometown of Cupertino is under audit by state regulators in California. According to Bloomberg, the California Department of Tax and Fee Administration began auditing the agreement between Apple and the City of Cupertino in 2021.
The audit focused on how Apple treats online sales. Apple’s arrangement with Cupertino is such that the company “treats all online purchases of products in the state of California as if they were made in Cupertino”. This means that under California law, “1 percentage point” of the 7.25% sales tax is earmarked for Cupertino.
Although Apple isn’t named in the city staff report, the company is Cupertino’s largest source of sales tax revenue. The results of the audit are expected to be announced to city council officials tomorrow.
The report explains that local tax revenues are expected to fall 73% this year, and Cupertino may be required to return money to the state that it has received in previous years. Bloomberg highlights that Cupertino “may have to cut staff and other spending to cover the shortfall”.
Apple has faced regulatory scrutiny in the past, and this latest investigation by Californian officials highlights the ongoing scrutiny faced by the tech giant. Apple has been criticised for its tax practices, and regulators in multiple countries have investigated its tax arrangements. In 2016, the European Union ruled that Apple should pay €13bn ($15bn) in back taxes to the Irish government. Apple has disputed the ruling and is appealing the decision.
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The final outcome of the audit remains to be seen, but it highlights the ongoing challenges faced by Apple. The company has been criticised for its tax practices, and this investigation could lead to further scrutiny. Cupertino will have the option to appeal the findings once the full report is released, and it remains to be seen whether the city will do so.