What is a Local Tax?

Sometimes referred to as a municipality tax, a local tax is any type of taxation imposed by a local government entity. Cities, towns, counties, parishes and similar jurisdictions often utilize taxes as a means of creating revenue streams that aid in the upkeep of public services and various essential functions within the area. Depending on the nature of the local tax, it may or may not be eligible for use as a deduction on a state or national income tax return.

One of the more common examples of a local tax is known as a sales tax. In this scenario, a city or town imposes a tax that is assessed on various types of goods sold in retail establishments within their jurisdiction. Items like food, clothing, various types of entertainment, and other purchases are all likely to be subject to some sort of local tax. Since taxes of this type are collected at the point of sale, the consumer does not typically have to track the taxes paid; the retailer or vendor does this.

Many local jurisdictions also make use of property tax laws as a means of generating revenue that is used to maintain local services. Unlike the sales tax that is collected each time a purchase is made, property tax is assessed on an annual basis, using criteria established in the regulations of the local jurisdiction. While this is not always true, a local tax on property is likely to be higher when there are no provisions for collecting sales tax on basics like food or clothing.

The local sales tax burden can sometimes be cumbersome for residents living within a given jurisdiction. This is because they may be subject to more than one type of local tax. A citizen of a small town may pay city taxes, while also being assessed county taxes of some type. When this is the case, retailers collect all applicable taxes at the point of purchase and submit the appropriate percentage of the collected revenue to each jurisdiction. This means that if a consumer currently pays ten percent taxes on purchases, sixty percent of that figure may go to a state revenue agency, thirty percent to the city, and twenty percent to the county or parish.

In terms of local services that are funded with local tax initiatives, many municipalities utilize the money collected to maintain streets and roads within the jurisdiction, manage expenses associated with garbage pickup upkeep on water and sewage systems, and even provide support for local school systems. At times, a local tax may be implemented that is for a specific purpose, and the funds collected cannot be used for any other purpose. For example, if a county imposes an education tax, the money collected is earmarked for use with local schools, and cannot be redirected for use in repaving streets or supporting the upkeep of municipal parks.