After losing at trial, the Maine State Tax Assessor is now arguing to the state’s Supreme Judicial Court that sales tax applies to carrier subsidies received by Apple on its sales of iPhones bundled with service contracts. During the years in issue, Apple sold iPhones to its customers at a reduced price when the customers also purchased a long-term service contract from a wireless telecommunications carrier. Pursuant to agreements Apple had with these carriers, the carriers promptly reimbursed Apple after the sales to make up for the discounted price. Apple remitted sales tax on the amounts paid by its customers, but not the reimbursed subsidy amounts.
The Tax Assessor assessed sales tax on the subsidies and Apple ultimately brought an action in Maine’s Business and Consumer Court. The lower court concluded that the subsidies Apple received from the carriers were not part of the taxable sales price of the iPhones, but instead were intended to “compensate Apple for securing long-term commitments on behalf of wireless carriers.” The Tax Assessor argues on appeal that Apple expected to be paid the subsidies when it sold the iPhones, and that Maine’s statutory definition of “sale price” is broad enough to capture those subsidy payments.
The Tax Assessor’s position reflects a growing trend among state tax agencies wherein those agencies apply sales tax to amounts above what is paid by a customer for a particular item, in many instances elevating substance over form. Stay tuned for further developments in this case and in other cases where tax agencies seek to extend the sales tax base through an expansive interpretation of the sales price.