Apple is synonymous with the city of Cupertino — and vice versa. But Cupertino still has to offer Apple the right tax deal in order to stay the hometown of choice for the city’s biggest taxpayer.
According to a new report, Cupertino has awarded Apple close to $70 million, taken from sales-tax collections in the past 20 years. Public records also show that this amount has increased dramatically in the last few years.
The tax deal with Apple was struck in 1997, shortly after Steve Jobs returned to Apple. Apple was a very different place at the time, coming off some of the worst years in company history. Due to several extensions, the deal will now run through at least 2033.
The deal means that Apple gets 35% of local sales taxes collected on sales of its products to businesses in California, along with two of its retail stores in Cupertino. In the most recent financial year, payments to Apple through the incentive hit $6 million.
Similar deals are in place with Best Buy and online shopping site QVC.
Apple in Cupertino
The payments have been made under a little-known tax incentive deal struck in 1997, when Apple was on the brink of bankruptcy, and that’s likely to endure until at least 2033. Initially, Apple’s rebate was up to 50% of sales tax revenue the company generated from sales to businesses in California. That figure dropped to 35% in 2013, as part of the deal by build Apple Park.
As the report by Bloomberg Tax notes:
“The cities see the payments, which can last for decades, as a tool to lure or keep e-commerce jobs and bring in new revenue to pay for vital services, since cities keep half or more of the sales taxes generated. Cupertino Mayor Steven Scharf said some of the city’s 64,000 residents may complain about the payments but officials worry Apple would designate its sales elsewhere if the agreement ended.”
‘The optics of the agreement are not great due to Apple’s spectacular turnaround,’ Scharf said. ‘But ending the agreement would have negative consequences so it is something that the city needs to accept.'”
While the figures are relatively small for Apple as a percentage of its overall revenue, they’re big bucks for Cupertino. In the 2012-2013 fiscal year, the payments represented 10% of Cupertino’s general fund revenue. Today, following the reduction in percentage, they vary between 4.8% and 6.4%.
Not all of the payments have been one-way. Apple is currently offering $9.7 million to fund bike and pedestrian transportation project. However, this would also be an attempt to sidestep proposals to impose a per-employee tax on Apple employees.