Cupertino has paid Apple $12.1 million, settling a sales tax dispute that reshapes how tech giants and cities do business in California.
Since 1998, Apple has treated all of its online sales within California as if they originated in Cupertino. That arrangement allowed the city to collect 1% of Apple’s 7.25% sales tax, according to
In its latest move to resolve the long-running dispute, City Council approved the payment during a Tuesday meeting with no discussion. The refund covers sales tax revenue Apple generated between January 2023 and June 2024.
According to city documents, the transaction was finalized on March 6, 2025, and the money came from Cupertino’s general fund, which supports most of the city’s services.
The settlement followed an audit by the California Department of Tax and Fee Administration (CDTFA), which found that the state — not Cupertino — was entitled to the revenue from Apple’s online sales.
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How Apple’s tax setup worked for decades
The long-standing agreement between Apple and Cupertino shaped where sales tax dollars went and sparked growing controversy over time.
As part of the deal, Apple received about a third of the revenue back. The returned revenue is a common incentive used by cities to attract or retain major employers.
The arrangement benefited both parties for over two decades. Cupertino received tens of millions of dollars annually, which helped fund infrastructure, services, and public projects.
But as Apple’s online sales grew, so did scrutiny from other cities that argued they deserved a share of that tax revenue.
CDTFA changes the rules and Cupertino adjusts
That scrutiny led to the CDTFA’s 2023 audit. The agency concluded that tax revenue from Apple’s online transactions should be distributed across the state based on where purchases were actually made or delivered — not where the company is headquartered.
Cupertino was initially expected to return $56.5 million, prompting budget reductions affecting city staff, community programs, and capital projects.
CDTFA changes the rules
A settlement reached in October 2024 allowed the city to retain $74.5 million in previously collected revenue, reducing the immediate fiscal impact. However, the agreement also required Cupertino to refund Apple $12.1 million from its own general fund.
Why this matters for cities and tech firms
The Cupertino-Apple case may set a precedent for other municipalities in California that have similar revenue-sharing arrangements with large companies. It’s a reminder that digital-era tax deals are subject to state oversight and legal challenge, especially when they appear to concentrate public revenue disproportionately.
While local governments often offer incentives to keep major employers within city limits, the state is increasing scrutiny over how those arrangements affect broader tax fairness and distribution.
For Apple, the refund is minor in the context of its overall finances. But the CDTFA’s decision may prompt the company and others to reconsider how they report online sales within California.
For Cupertino, the settlement brings a measure of closure, though the long-term budget implications remain unclear. The case has also sparked wider discussions about how local economies should structure tax policy in an increasingly digital retail environment.
