Cupertino has millions to spend from Apple settlement

With Cupertino absolved from paying California millions of sales tax dollars it collected from Apple, city officials are strategizing how to use it.

Cupertino was allowed to keep the roughly $74.5 million in Apple sales tax revenue it set aside from 2021 through August after reaching a settlement with the California Department of Tax and Fee Administration last month. On Tuesday, the Cupertino City Council voted 4-1 to allocate $10 million into CALPERS, the retirement benefits program for public employees. The remaining $64.5 million will be allocated in January when a new council is seated. Councilmember Kitty Moore was the dissenting vote.

The settlement is a direct result of an audit the state began in 2021 that examined whether Apple’s sales tax revenue was going to the right places. The audit found the tech giant was misallocating funds and Cupertino was caught in the crosshairs.

To make up for the millions it would’ve needed to pay the state, Cupertino cut services — including stripping 13 full-time positions, reducing part-time staff and eliminating Fourth of July fireworks, leaving some residents unhappy. Now councilmembers will decide the best use for the rest of the money early next year.

“It’s better if we have a holistic discussion, study session discussion first,” Councilmember Liang Chao said.

Moore did not agree with putting $10 million into CALPERS. She said she wanted to hear more from city workers regarding the historical impact on Cupertino when interest rates have gone down.

“I think we have more study on it,” Moore said. “And I would like to hear what the new councilmember has to say. I think that’s very important to wait for them to weigh in on it.”

Several residents advocated for the city to put the money away and be careful with how it’s spent, given anticipated future shortfalls. Due to the settlement, the city will no longer receive the Apple sales tax distribution the state determined should go to other jurisdictions, beginning in 2025.

Before the settlement and audit, Cupertino had a longstanding sales tax agreement with Apple, in which the tech giant designated all online product sales to California residents as taking place in Cupertino. It allocated the local 1% portion of the state’s 7.25% sales tax from those transactions to the city, and the city in turn gave back about a third of that tax revenue to Apple.

“We’re not going to get this money back,” resident Rhoda Fry said during public comment. “In the past, we were getting about $27 million sales tax revenue (from Apple). We’re going to be going down to about $10 (million) so that means we need to save about $17 million a year. We want the city to continue flourishing, and the way to do that is to put money away and get it in interest and live off the interest.”

The audit left Cupertino saddled with some of the worst financial hardship it has seen — about a $15 million deficit for fiscal year 2024-25.  The influx of cash from the settlement will help it replenish some cut services or help it grow interest, whichever option councilmembers choose in January.

Councilmembers Hung Wei and Moore are competing to keep their seats against several former officials in an at-large election. The council race is close this year, with pro-development and less development-friendly factions pulling for their preferred candidates to take the council majority. As of Wednesday morning, the county still has 8,000 unprocessed votes.
Moore is leading with about 25.1% of the vote, or roughly 10,320 votes. R “Ray” Wang is in second, who has about 18.5% of the vote, or 7,627 votes. But there are only 65 votes separating Wang and Rod Sinks, who is trailing in third with roughly 18.4%, or 7,562 votes. Wei is fourth, with 7,096 votes, or 17.2% of the vote.

The city is exploring other revenue sources to make up for the loss in sales tax, officials said.

“Now is not the time… to be making decisions on the cusp of changing council,” resident Sam, no last name given, said during public comment. “We need to just take our time and not make these decisions in haste.”

Contact Joyce Chu at [email protected] or @joyce_speaks on X, formerly known as Twitter.