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.
> 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.