ALBANY — Apple may be conquering the world with its iPhone sales but the company is no match for the New York State Department of Taxation and Finance.
The California-based computer, phone and tablet maker recently lost a court case in which it sought to avoid paying sales taxes associated with a back-to-school gift card promotion the company ran in 2011 and 2012.
As a result, the company has to pay back $995,197 in taxes and interest.
In 2011, Apple’s back-to-school promotion involved a $100 gift card with purchases of computer equipment. Then in 2012, they offered a $50 card with the purchase of an iPad.
The company never remitted sales taxes on the cards, reasoning that they were actually a discount on the purchases that earned the gift cards.
After an audit, state tax officials disagreed and said sales taxes were owed on the cards. Apple appealed to a state tax tribunal, where tax matters are sorted out, but the tribunal agreed with the tax department.
The company then went to court where it lost the initial round and this round before the midlevel appellate division.
“Tribunal properly determined that petitioner had under-calculated sales tax owed on those receipts,” read an opinion from the state’s Third Appellate Division earlier in April.
State tax officials wouldn’t say when or how the money would be paid back since such agreements are confidential.
Neither Apple nor their lawyer returned a request for comment.
According to the court decision, Apple had testified that retailers collected sales tax on the entire value of their products. But the company maintained that they did that because point of sales systems in retail stores weren’t set up for issuing free gift cards,
an interesting argument given Apple’s technical savvy.
The court also concluded that Apple “Failed to meet its burden of establishing that the receipts of the BTS (Back to School) promotional sales included the purchase of a gift card.” As a result, they said the tax tribunal had “Properly determined that petitioner had under-calculated sales tax owed on those receipts.”
