Beware of Home Rule Jurisdictions

By June 17, 2011Retail

For local sales tax purposes, most cities and counties that have their own tax administration must follow the substantive tax rules outlined by state sales tax law.  This is not the case, however, with “home rule” cities.  These are mostly found in Arizona, Colorado, and Louisiana.  In a small way, you may see some issues in Alabama also.

The difference between state and local tax rules became very evident for a client recently who assumed the tax base in Phoenix, AZ was the same as the tax base for the state of Arizona.  The difference was brought to his attention by a city auditor.  The “Model tax Code” used by most of the home rule cities in Colorado broadly defines the term “gross income” to include many of the services that are excluded by state law.  Primarily separately stated postage and delivery charges.

A similar issue exists with another client who sells machinery to customers located in Denver, Colorado.  For state purposes these sales are exempt under the manufacturing equipment exemption.   For Denver purposes, they are taxable because Denver does not exempt machinery used in manufacturing.

Be alert if you do business in Arizona, Colorado, and Louisiana.  Do not just assume the tax rules are the same for state and local tax purposes.

Ned Lenhart

Interstate Tax Strategies
Home Rule