Sales Tax Revenue Distribution in Tompkins County

I was just recently asked to explain how sales tax revenues in Tompkins County are dispersed among the City of Ithaca, and the Towns and Villages within the County. (I’d like to thank David Squires, the Finance Director, for his help in providing a clear and accurate statement when I asked for assistance.)

Let’s imagine that you buy a power tool or a small kitchen appliance for $100. You’ll also pay $8 in sales tax. Whether you buy the item in the City of Ithaca, Trumansburg, Lansing, or Dryden, New York State will get half of the 8 percent tax or $4. Which municipalities receive the remaining $4 depends on where you buy the item.

The revenue collected from the 4 percent “local” tax is divided among the County, the City of Ithaca, and Town and Village governments. It is split into two distinct pools: the 3 percent pool and the 1 percent pool.

From the 3 percent pool the County receives one-half of all tax collected both inside and outside the City. If you shop in the City, the City would get the other half of the 3 percent. If you do your shopping outside the City, the tax would be collected and distributed by shares according to population among the Towns and Villages. The City receives its portion directly from the State. The County receives and distributes the other shar

The remaining 1 percent pool is divided somewhat differently. When the sales tax was raised from 7 to 8 percent in 1993, a new distribution policy was established. From this pool, the County receives a three-quarter share of all revenues collected both inside and outside the City. The City receives the other quarter from purchases made within the City. The other municipalities receive one-quarter of the revenues collected outside the City, and these are again distributed according to population.

So if you bought a power tool for $100 in the City of Ithaca and paid $8 in sales taxes, the State of New York would receive $4, the County government would receive $1.50 from the 3 percent pool and 75 cents from the 1 percent pool for a total of $2.25, and the City government would receive the remaining $1.75. However, if you bought a $100 item outside of the City—in Lansing, or Dryden, or any of the other Towns or Villages—the State would again get $4, the County $2.25, and the remaining $1.75 would be divided among the Towns and Villages by population regardless of the community where you shop. The Town of Caroline has about 4 percent of the County’s population so it would get about 7 cents. The Town of Ithaca, with about 25 percent of the County’s residents, would receive about 43 cents of the $1.75.

It’s interesting to note that successful retail development within the City directly benefits the City’s revenues through both sales taxes and property taxes. Retail development outside the City is more likely to benefit the host community through increased property taxes since sales tax receipts are based on population rather than the location of the sale.