Orange County Tax Money Distribution Error Went Unnoticed for More Than a Decade

MOUNT HOPE, N.Y.—The Office of the New York State Comptroller has told the Orange County government that its distribution of sales tax revenue to municipalities has violated state law since 2014, and officials are worried that it could lead to towns and cities missing 20 percent of planned fund distribution from the county.

New York law allows counties to generally tax up to 3 percent, and Orange County collects a 3.75 percent local sales tax. The county can tax even more under an incremental tax system that requires authorization from the state legislature every two years. It then shares about 26 percent of the collected tax money with local municipalities every year.

The issue Orange County faces is that only the base 3 percent may be shared with municipalities, while the extra 0.75 percent may not.

County Attorney Rick Golden told the Orange County Rules Committee on April 22 that County Executive Steve Neuhaus is concerned that the finding would prevent the county from distributing funds already written into municipal budgets.

Deputy County Executive Harry Porr and Golden presented a regulation by Neuhaus for submission to the state Legislature that would make the distribution of the 0.75 percent legal, allowing the county to carry on as it has.

Porr told the committee that the agreements with the municipalities for sales tax distribution date back to the late 1980s, and the legal trouble began in 2004.

Golden said the county began taxing the extra 0.75 percent in 2004 but did not start sharing it with the cities, towns, and villages until 2014. He said the mistake was made and went unaddressed for so long because the session law that imposed the 3 percent limit on sharing was not codified, meaning that it was not systematically compiled and readily findable.

According to a 2020 state report, 26.38 percent of sales tax revenue is distributed to cities, towns, and villages, while the county keeps the rest. If the county were required to enforce the law without implementing Neuhaus’s home rule, the county would not be losing any money; it would simply be giving less to the municipalities.

The three cities of Newburgh, Middletown, and Port Jervis receive a collective 32.52 percent of the money given to municipalities. Port Jervis, with a population of about 8,500 people, receives about 13 percent of the city funds, and the two other cities, each with about 30,000 residents, split the rest about evenly. The 67.48 percent of the tax money given to smaller municipalities is split between the towns and villages based on population.

State Sen. James Skoufis told The Epoch Times on April 28 that he is working as quickly as possible with his colleagues to draft a straightforward fix to the error and pass it before the New York State Assembly and New York State Senate adjourn in June. He said that without a fix, the error would result in enormous property tax hikes and service cuts in the county.