GOSHEN – Orange County has violated state law for more than a decade, illegally overdistributing sales tax revenue to municipalities, an error that could now leave the county’s local governments facing a combined shortfall of nearly $20 million in 2026.
The issue came to light at last week’s Orange County Legislature Rules, Enactments and Intergovernmental Relations Committee meeting and was confirmed by Deputy County Executive Harry Porr and County Attorney Rick Golden. Since 2014, the county has been sharing revenue from the 3.75 percent of sales tax it is permitted to keep; legally, they are only authorized to share from 3.0 percent of the 3.75 percent.
Golden told lawmakers that Deputy County Attorney Carol Pierce was recently notified by the state Comptroller’s Office of the discrepancy. In response, Porr and Golden introduced a resolution on behalf of County Executive Steve Neuhaus to submit a home rule request to the State Legislature. The request seeks approval of special legislation that would retroactively authorize the additional 0.75 percent distribution — a process officials said could take time.
The Legislature is scheduled to vote on the resolution at a special meeting at 3:30 p.m. Tuesday.
Senator James Skoufis (D, Cornwall) said he is working with colleagues to advance a solution to fix the state-identified county error to ensure local villages, towns, and cities are made whole – but noted that the resolution, as drafted, cannot be voted on by the County Legislature at Tuesday’s meeting.
“Home rule resolutions like this one must reference Assembly and Senate bill numbers to be valid,” shared Skoufis. “The County Executive’s office failed to let any state lawmakers know of this error – I learned of it second-hand late last week – and, as a result, no bills have been introduced yet. Only after legislation is drafted and introduced will the county be able to submit its formal request to the State Legislature.”
Without the additional revenue, municipalities could lose roughly 20 percent of expected sales tax income used to balance budgets and limit tax increases, according to Republican Legislator Barry Cheney.
For instance, the City of Middletown’s sales tax payment will drop by about $721,000 in the first quarter of 2026 after the correct rate is applied. The Town of Wallkill is expected to lose more than $300,000 over the same period. In total, Orange County’s municipalities will lose about $19.8 million in sales tax sharing annually.
During the committee meeting, Porr described the situation as stemming from “a defect in the state legislation,” adding that the county is currently barred from distributing the extra 0.75 percent.
Committee Chairman Jonathan Redeker pressed Porr on how long the issue had persisted.
“I hate to admit this,” Porr said, “but when the first sales tax agreement was struck in the late 1980s, I was working for (former County Executive) Lou Heimbach. It’s changed over the years, but I think this present issue goes back to 2004.”
Golden said that the county may have initially requested the higher distribution rate, but was not alerted to the issue by the state until recently. He noted that while the additional 0.75 percent is documented in state legislative legal records, it is not codified in state law.
Ramos also asked whether the county’s municipalities would be formally notified.
“The Finance Department will be notifying them,” Golden said. “This needs to be reduced because the Comptroller said it is illegal, and we can’t share the additional 0.75 percent at this time. However, we have a home rule request to reinstate that.”
Under state tax law enacted in 2004, counties and certain cities are authorized to impose a local sales tax of up to 3.0 percent in addition to the state rate of 4.0 percent, with some of those revenues redistributed to local jurisdictions.
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