Where Does Your Sales Tax Go?

by Ned Benton with photo from Paula Eisenberg

(December 4, 2003) Ka-ching! You've made another purchase at a local Larchmont store, and for every dollar you've spent, another seven cents has gone to the sales tax. Ever wonder where that money goes? The following is a basic primer on the sales tax.

Where does my seven cents go?

Your pennies first visit the State Department of Taxation and Finance, which collects the tax from the local store.

The state then redistributes the pennies according to the laws that set up the taxes.

Most of the pennies stay with the State itself.

Of the seven cents, one quarter of one cent goes to local transportation - the MTA via the Metropolitan Commuter Transportation District.

The rest - 2.5 cents - goes to the County, which keeps 2 cents and distributes (based on population) one-third of a cent (0.33%) to towns and villages and one-sixth of a cent (0.17%) to school districts.

This particular distribution of the sales tax goes back to 1991 when the State approved a 1% increase in the county sales tax. They agreed to split the extra tax with the county, towns, villages and schools, but the State got the lion's share.

What does this mean for Larchmont?

In 2002, the Office of Tax Policy Analysis reported that New York State collected $8,247,755,984 in sales and use taxes. Of these collections, $328,013,646 was distributed to Westchester County.

For Larchmont and Mamaroneck, a penny here and a penny there adds up to several million dollars. For the Town of Mamaroneck, the 2004 preliminary budget includes $1,000,000 in sales tax revenue. Larchmont's 2002-2003 budget include's $575,000, and the Mamaroneck School District 2002-2003 budget included $750,000 in sales tax revenues.

However, in the overall local government picture, the pennies still amount to pennies - about 1% of the school district budget, and less than 5% of the Village of Larchmont budget. The property tax is still the primary revenue source for local government.

Is Larchmont's sales tax lower than in other places?

The sales tax in Larchmont (and other towns and villages) is lower than in cities like New Rochelle, Mount Vernon, Yonkers and White Plains. In some cities, the State has authorized an extra sales tax - usually 1% - that is dedicated to the city where the tax is paid.

Does Larchmont get more sales tax revenue if I shop locally?

There are many good reasons - like quality, convenience, and friendly service - to shop in Larchmont. However, the village, town and school district sales tax collections are distributed back to these governments based on population, regardless of where the tax was originally collected.

Why did Larchmont's sales tax increase last year from 6.75% to 7%?

You may recall that last year, County Executive Andy Spano proposed a 1% increase in the sales tax. Under Spano's plan, the revenues would have offset property tax increases at the County, and (by sharing some of the revenues) at the Town and Village levels.

The legislature did not approve the increase to benefit local governments in Westchester County. But their opposition was not based on principle. They raised the statewide sales tax 1/4% anyway, increasing the local rate in Larchmont from 6.75% to 7%.

But they dedicated the money raised to State government.

Is the sales tax likely to increase again this year?

In 1866, Mark Twain observed that "No man's life, liberty, or property are safe while the legislature is in session." The Governor and state legislature must approve any new taxes.

Thus far, Westchester County Executive Andy Spano has proposed again, in his Budget Message, to add 1% to the sales tax collected in Westchester County. Spano describes the proposal as "The best of bad options."

While not rejecting the proposal outright, local officials have expressed concerns. (See a recent Gazette article about the County Budget for more information.)

Town Supervisor Valerie O'Keeffe explained “One thing that has bothered me and continues to bother me is that the proposed sales tax hike would be levied only in towns and villages, but not in cities. That doesn’t seem fair.” The proposal would raise the sales tax everywhere but in the major cities (Yonkers, Mount Vernon, White Plains and New Rochelle), where there already are higher sales taxes that are shared with the municipalities.

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