Municipal sharing is when a larger political division (e.g., a state in the US or a province in Canada) distributes some of the taxes it collects to municipalities (cities). Most of the time this happens because there is some imbalance with the taxing authority provided to local governments and the state/province uses its taxing authority to equal things out. For example, in some states cities can only collect taxes through property taxes. If a city needs more money, it's only option may be to raise property taxes, but if it does that then it may become unaffordable for many citizens. With a municipal revenue sharing program, the state can transfer funds to the city that's having trouble to try to relieve its tax issues without requiring it to raise property taxes.

Here's Maine's municipal revenue sharing law. It bascially says that the state of Maine must transfer 5% of certain taxes it collects to a local government fund and the funds from there are then transferred to cities.