How towns get their cash

Main sources of revenue (cash income) for US municipalities (cities and towns), with approximate shares of total general revenue.

Figures are national averages drawn primarily from US Census Bureau data via analyses by the Tax Policy Center (around 2021), GFOA, and related sources. Shares vary substantially by state, city size, and local tax authority. “Local governments” in Census data include cities, counties, townships, school districts, and special districts; pure municipal (city) figures are similar but often show somewhat lower property-tax reliance and higher charges/sales-tax reliance than the broader local total.

Approximate national composition for local/municipal general revenue

Source Approximate share Notes Property taxes 24–30% Dominant own-source tax for most cities; typically the single largest local tax. Higher in many Northeast/Midwest places; lower in some Sun Belt cities. Of pure local tax collections, property taxes are often ~70%+. Intergovernmental transfers (state + federal) 24–37% Mostly state aid (often 20–30%+), with smaller direct federal grants (~5–7%). Much state aid supports schools or is passed through; highly important for many cities. Charges and fees (user charges, service fees) 16–22% Includes water/sewer, parking, recreation, solid waste, hospital/clinic fees where applicable, permits, etc. Often one of the largest categories for pure city governments. Sales and gross receipts / selective sales (excise) taxes 7–14% General sales tax is the bigger piece where authorized; selective taxes (hotels, meals, utilities, tobacco, etc.) add more. Much more important in some Southern and Western cities. Income / wage / payroll taxes 2–6% (national average; much higher where used) Levied by only a minority of localities (notable in parts of Ohio, Pennsylvania, Kentucky, New York City, etc.). Can be 15–40%+ of revenue in those specific cities. Other taxes + miscellaneous 5–11% Licenses, franchise/business taxes, interest earnings, fines, asset sales, special assessments, etc.

Key points and context

• Own-source vs. intergovernmental: Taxes + charges/fees typically make up the majority of “own-source” revenue. Intergovernmental aid is critical and often the largest single category in broader local-government aggregates (especially because of school funding).
• Taxes specifically: When looking only at local tax dollars (not total revenue), property taxes commonly account for ~70–75%, sales/excise ~15–18%, and income taxes ~5–6%, with the rest from other taxes.
• Big variation:
  • Some Texas/Oklahoma-style cities lean heavily on sales taxes and charges.
  • Many Northeastern cities lean more on property taxes (and sometimes local income taxes).
  • Cities with major utility systems or enterprise funds show higher “charges.”
  • School districts (often separate from city governments) pull the broader “local” averages toward higher property taxes and state aid.
• Utilities and enterprise funds: Revenue from water, electric, gas, or transit systems is frequently accounted for separately (or as charges) and can be substantial, though not always fully fungible for general-fund purposes.
• Data notes: Shares shift modestly over time with economic cycles, federal stimulus (e.g., COVID-era transfers), property-value changes, and state policy. The most recent comprehensive Census of Governments and annual surveys remain the standard national source; city-level mixes differ from county or school-district mixes.

In short, the core pillars for most US municipalities are property taxes, charges/fees for services, state (and some federal) aid, and sales taxes, with local income taxes mattering a great deal in the subset of places that use them. Exact percentages for any given city require looking at that city’s budget or ACFR.