Department of Taxation and Finance

Distribution of Sales Tax Revenues to Localities

When individuals pay sales tax directly to the Department of Taxation and Finance (Department), it is done on their personal income tax returns. The returns are then processed by the Department's computer system, which tracks the amounts of sales and use taxes. This amount is used to determine how much should be distributed to localities throughout the State as well as taxpayer assessments. Since this process is automated, there is no verification that the amounts reported by individuals are accurate.

While we determined that the Department's system correctly processed the returns, taxpayers often made common errors when completing the returns that resulted in incorrect calculations of taxes due. We found that 32 of 90 personal income tax returns we reviewed had errors totaling $371,656 relating to the reporting of sales and use tax. As a result, there was an incorrect distribution of revenues to localities as well as incorrect tax assessments sent to taxpayers. The errors also caused the Department to have additional costs since it had to adjust subsequent payments to localities and work with the taxpayers to correct the improper assessments.

For a complete copy of Report 2010-S-77 click here.
For a copy of the 90-day response click here.