AC 04-24-2023 Written CommunicationsFrom:Peggy Griffin
To:City of Cupertino Audit Committee
Cc:"Rhoda Fry"
Subject:4-24-2023 Audit Committee Mtg-AGENDA ITEM 1 Draft Minutes CORRECTION
Date:Monday, April 24, 2023 3:28:45 PM
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you
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PLEASE INCLUDE THIS EMAIL AS PART OF WRITTEN COMMUNICATION FOR THE ABOVE MEETING
AND AGENDA ITEM.
Dear Audit Committee,
There is an error in the Draft Minutes for the March 27, 2023 Audit Committee Meeting.
ERROR: Below is what is shown on page 1 of the Draft Minutes. Rhoda Fry and I (Peggy Griffin)
made comments under ORAL COMMUNICATIONS, not OLD BUSINESS.
CORRECTION: Please move “Rhoda Fry and Peggy Griffin made comments.” To be under ORAL
COMMUNICATIONS.
CORRECTION: Wherever it refers to “Peggy”, should you specify “Peggy Griffin” instead? Same with
“Rhoda”, specify “Rhoda Fry”.
Thank you,
Peggy Griffin
1
Janet Liang
From:Rhoda Fry <fryhouse@earthlink.net>
Sent:Monday, April 24, 2023 3:36 PM
To:City of Cupertino Audit Committee
Cc:City Clerk
Subject:Oral Communications and Questions for 4/24/2023 Audit Committee
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the
sender and know the content is safe.
Dear Audit Committee,
For oral communications today,
The April 13 city council 10‐year budget presentation showed that the city had been given the lookback period for the
cdtfa audit. What is the lookback period and what is the worst case payback scenario? Bloomberg seems to know, why
don’t we?
Every time I look at the budget, I find things that are concerning.
With respect to property taxes, why do some gas stations in Cupertino have assessments on improvements whereas
others (that have been improved) do not? Vallco still has some buildings on it that are still in use but they are not
valuated. Is it properly valuated?
Also, the City of Cupertino should consider annexing those Lehigh properties in the sphere of influence (SOI) of
Cupertino in order to collect property tax.
Where do funds that are earmarked through grants or taxes show up in the budget? Storm drain fee, jollyman park
playground, extra sheriff for Apple, and various Apple grants. Pool repairs came out of special projects, but how does it
get charged back to parks and rec – or better yet, the non‐existent pool enterprise fund.
I am concerned that the parks and rec catalog, for example, appears to have been paid for by the general fund. Without
enterprise funds or good tracking, we have no idea what things are costing us and where we should cut. Some parks and
rec items make money. BTW, we should get rid of coffee/tea at City Council meetings.
How are the Apple “gifts” for 2 sheriff coverage accounted for as a line item in the budget? See City Council 9/18/2018
agenda #15
https://cupertino.legistar.com/LegislationDetail.aspx?ID=3674327&GUID=117DDBCD‐3199‐4AA5‐AF04‐
D60AE5D51010&Options=&Search=
Along with the budget, we need to show a revised budget along with actuals. This used to happen in 2001.
Agenda Item #1: Please spell my name without an “n” in it. Also, Vice‐Mayor Mohan had said that she would get back to
us about exactly why admin cost more than doubled between 2021 and 2022 and explain why various fee‐based services
are no longer run through enterprise funds (and if not, what tracking mechanism could be used).
Why do I have to go to the National News to find out what is really going on in Cupertino?
https://news.bloombergtax.com/daily‐tax‐report‐state/apples‐hometown‐will‐appeal‐sales‐tax‐loss‐tied‐to‐sharing‐deal
April 20, 2023, 1:45 AM
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Apple’s Hometown Will Appeal Sales Tax Loss Tied to
Sharing Deal
Laura Mahoney
Correspondent
Company is responsible for appeal costs, partial repayment
State questions deal giving Apple part of tax from online sales
Apple Inc.'s hometown of Cupertino, Calif., will appeal a state finding that would force the iPhone maker to give up at
least $20 million it has received from the city from local taxes paid by Californians on purchases of Apple products.
The state revenue department is coming down on an arrangement Apple has had with Cupertino since 1998, under
which the city collects all local sales levies on Apple online sales in California and hands over 35 cents of every dollar to
the company. Apple has received $107.7 million under the arrangement, according to city records.
City Council members decided to appeal the state’s findings that the flow of money to Cupertinosales‐tax is improper
while meeting in a closed session last week, spokesperson Esther Kwon said. The decision came after staff told them
during open session that city sales‐tax revenue will drop by 73% a year as a result of an audit from the California
Department of Tax and Fee Administration involving a single taxpayer. Revenue could drop to $11.4 million in the
current fiscal year from $42.1 million, and the city may have to repay amounts from past years.
Although city officials don’t name Apple in all their discussions of the matter, citing taxpayer confidentiality rules, the
iPhone giant is the city’s largest source of sales tax revenue, due to its tax‐sharing agreement.
Cupertino is one of a handful of California cities benefiting from state tax rules that skew city fortunes depending on
where retail giants like Apple, Best Buy Inc., or Amazon.com Inc. decide to locate warehouses or assign their online
sales. With tension between California cities intensifying as online shopping has exploded, the tax department released
a report this month showing two‐thirds of California’s 482 cities are losing revenue and fewer than 30 are winning under
the current rules, which were adopted in the 1950s.
Cupertino officials will proceed with the appeal as soon as they receive a final determination from the department,
which notified the city of its findings verbally in March. The first step is to appeal administratively within the
department, and if the city disagrees with that outcome it can appeal to the Office of Tax Appeals, which is an
independent body of administrative law judges. After that, the city can take the case to state court.
At the heart of the dispute is the flow of sales tax from Apple’s online sales in California. Apple designates Cupertino as
the location of all online California sales, which means that a 1 percentage point increment of the 7.25% state sales tax
goes to the city because state law requires it to go to the location of the transaction, not the customer.
Apple remits all sales tax it receives to the state tax department, which then allocates the 1% local portion to Cupertino.
The city then passes on 35% of its total to Apple. For example, if a California resident orders an iPhone 14 Pro Max
online at Apple.com for $1,099, Cupertino receives $10.99 in sales tax from the state and gives Apple $3.85.
Since the agreement took effect in 1998, Cupertino has paid Apple $107.7 million, according to city payment records
examined by Bloomberg Tax.
3
Under two different documents related to the agreement, Apple is responsible for costs of the appeal and partial
repayment of the money it has received, although Cupertino and Apple officials declined to confirm Apple’s role and
responsibilities going forward.
According to 2013 updates to the agreement included in the City Council’s approval of the company’s plans for its iconic
Apple Park campus, the company bears all costs in defending the city in administrative proceedings with the state
“relating to whether the city is the proper point of sale location.” This update also reduced the company’s share of sales
tax from the 50% it had been receiving since 1998 to 35% going forward.
In a separate extension of the agreement approved by the City Council in October 2013, if the state tax department
proposes to reallocate the revenue away from Cupertino, Apple must repay the amounts it has received. The city must
place the money in an escrow account, and if the final outcome isn’t in the city’s favor the money is to be released from
escrow to help the city repay the state.
The extension also calls for Apple and Cupertino to “cooperate in any effort to avoid, reduce or nullify any such
reallocation.”
Cupertino officials won’t say how far back the tax department’s audit goes, but say the city could be required to repay
past amounts at the same time it loses revenue going forward.
Under state law, the tax department can reach back up to two quarters before it “obtained knowledge of the improper
distribution.” The department won’t say when it obtained knowledge related to Cupertino and Apple, but it notified the
city in December 2021—the fourth calendar quarter of the year—that it would be examining the arrangement.
Going back two quarters from there, payments Cupertino has made to Apple since the second calendar quarter of 2021
total $20 million, according to Bloomberg Tax examination of payment records.
To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloombergindustry.com
To contact the editors responsible for this story: Kimberly Wayne at kwayne@bgov.com; Bernie Kohn at
bkohn@bloomberglaw.com
Below are comments from March 27
From: Rhoda Fry <fryhouse@earthlink.net>
Sent: Monday, March 27, 2023 12:16 PM
To: 'AuditCommittee@cupertino.org' <AuditCommittee@cupertino.org>; 'City Clerk' <CityClerk@cupertino.org>; 'City
Council' <CityCouncil@cupertino.org>; 'manager@cupertino.org' <manager@cupertino.org>
Subject: Oral Communications City Council 4/4/2023 and today's audit committee
Dear City Clerk,
Please add Oral Communications City Council 4/4/2023 and today's audit committee
Thanks, Rhoda Fry
4
Requests for Audit Committee:
AGENDA ITEM #2
1. Make Crowe aware of California Department of Tax and Fee Administration (CDTFA) audit
2. The ACFR mentions that council appoints the treasurer, to my knowledge, this has not happened in at
least 50 years. See 5th page of pdf report, first agenda item, first attachment.
3. On the AFCFR, admin cost has more than doubled between 2021 and 2022, $3637M to $7293M. There
is some explanation for some increases, but this does not explain entire increase. See 28th page of pdf
report, first agenda item, first attachment. We need an explanation
4. Address all deficiencies listed and are there any past deficiencies that are yet to be resolved.
AGENDA #6 - WORK PLAN
1. Review monthly treasurer’s report with corresponding accounts payable (not doing so creates risk)
2. Review monthly investment report (not doing so creates risk)
3. Chandler Asset company previously provide in-person monthly reports from Carlos Oblites, we need
these back, especially given future uncertainties
4. Need updates on internal audit Moss Adams
5. Need updates for cdtfa audit; 2022 budget mentioned in twice last year that a major contributor to
our sales tax base was being audited and this could cause uncertainty in our budget.
6. Enterprise Funds:
a) The Blackberry Farm enterprise fund needs to be changed to Blackberry Farm Golf, to ensure
there is not confusion
b) The Senior Center previously had an enterprise fund and now it is gone. We need to get this
transparency back. We also need an enterprise fund for Blackberry Farm pools/picnic
7. Need updates fraud/waste/abuse per municipal code
2.88.100 Duties–Powers–Responsibilities.
The powers and functions of the Audit Committee shall be as follows:
To review the annual audit report and management letter;
To recommend appointment of auditors;
To review the monthly Treasurer’s report;
To recommend a budget format;
To review City investment policies and internal controls of such policies;
To recommend appointment of internal auditors;
To review internal audit reports;
To review quarterly Fraud, Waste, and Abuse Program reports