Apple owes nearly $1 million in back sales taxes

ALBANY — Apple may be taking the world by storm with its iPhone sales, but the company is no match for the New York State Department of Tax and Finance.

The California-based computer, phone and tablet maker recently lost a lawsuit 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 must repay $995,197 in taxes and interest.

In 2011, Apple’s back-to-school promotion involved a $100 gift card with the purchase of computer hardware. Then in 2012, they offered a $50 card with the purchase of an iPad.

The company never remitted the sales tax on the cards, believing it was actually a discount on purchases that earned the gift cards.

After an audit, state tax officials disagreed and said sales taxes were due on the cards. Apple appealed to a state tax court, where the tax issues are settled, but the court agreed with the tax department.

The company then went to court where it lost the first round and that round to the Mid-Level Appellate Division.

“The court correctly determined that the petitioner understated the sales tax owed on these receipts,” read an opinion from the state’s Third Appellate Division earlier in April.

State tax authorities would not say when or how the money would be refunded, as these agreements are confidential.

Neither Apple nor their attorney returned a request for comment.

According to the court ruling, Apple testified that retailers collect sales tax on the full value of their products. But the company maintained it did so because point-of-sale systems in retail stores were not set up to issue free gift cards,
an interesting argument given Apple’s technical know-how.

The court also found that Apple “failed to meet its burden of establishing that BTS (Back to School) promotional sales receipts included the purchase of a gift card.” As a result, they said the tax court “correctly determined that the petitioner had understated the sales tax owed on those receipts.”

Sallie R. Loera