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Comment by hourago | Hacker News Reader

> 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.

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> This is an openly illegal practice

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.

[0] https://www.cdtfa.ca.gov/formspubs/pub109/

"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.)

Ok I think I see that they would be required to collect use tax in this case, it would not be the customer remitting it.

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:

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.

Apple is headquartered in Cupertino, where would you have them allocate their sales if not there?

The place where the customer placed the online order from.

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/

> A sale occurs in the state where the merchandise is physically located at the time the sale takes place.

So in China? This is confusing. Its not like Apple is warehousing iphones somewhere waiting to be sold.

> 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’d assume the same way they determine the state to apply sales tax for, by the customer and not the company.

> 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.

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