Orange County faces $20 million sales tax shortfall, seeks Albany fix

Orange County is staring at a nearly $20 million hole in municipal budgets after state officials flagged a sales-tax distribution formula that county leaders say has been out of compliance for years. If Albany does not act, the county says cities, towns and villages could lose about $19.8 million in 2026, forcing local officials to confront cuts, tax hikes or both.

The problem centers on how Orange County has been dividing up its 8.125% sales tax, which includes 4% for the state, 3.75% for the county and 0.375% for the Metropolitan Transportation Authority. County officials told lawmakers that state law only allows the county to share revenue from 3.0% of its 3.75% levy, not the larger portion it has been passing along. The county says the error has existed since 2014.

The issue surfaced at a Legislature Rules, Enactments and Intergovernmental Relations Committee meeting, where Deputy County Executive Harry Porr said the problem stemmed from a “defect in the state legislation.” Committee chairman Jonathan Redeker pressed him on how long the formula had been in place. County Attorney Rick Golden said Deputy County Attorney Carol Pierce had been notified by the New York State Comptroller’s Office, which identified the discrepancy.

Orange County’s 2026 executive budget projects $412,339,869 in sales-tax revenue and sets aside $109,459,969 for distribution among the county’s cities, towns and villages, the same sharing amount used in 2025. County leaders now want a home rule request sent to Albany so lawmakers can pass retroactive legislation and avoid a sudden break in payments to local governments that rely on the money to balance annual budgets.

The impact would not fall evenly. Middletown could lose about $721,000 in the first quarter of 2026 once the correct rate is applied, while the Town of Wallkill is expected to lose more than $300,000 over the same period. Other municipalities across Orange County, from Goshen to smaller villages and towns, could also see their expected receipts reduced if the formula is corrected without a transition plan.

Senator James Skoufis said the county’s requested home rule resolution could not move forward in its current form because no matching Assembly and Senate bill numbers had yet been introduced when the issue surfaced. The county is now left trying to repair a decade-old mistake without breaking state rules again or triggering an immediate budget shock in local governments that count on sales-tax revenue to keep services running.