Making Sense of Home Rule Tax
Home Rule sales tax is yet another concept that can cause your business issues in the often-confusing world of sales tax. Defined as “legislative authority granted to local governments,” this rule allows local jurisdictions the ability to pass laws to govern themselves as they see fit. Home Rule can also allow jurisdictions the right to determine the sales tax rate and how it will use those funds for its benefit.
In contrast, most non-home rule states apply the principle known as Dillon’s Rule to determine the bounds of a municipal government’s legal authority. Under Dillon’s Rule, the state legislature typically enacts an “enabling statute” giving a local government the ability to act within a defined scope.
How can this impact your business?
There are currently 38 states employing some form of Home Rule. Of these 38, there are five that administer their own taxes, Alabama, Alaska, Arizona, Colorado, Illinois and Louisiana.
If you have nexus in one of these states, each area can potentially have its own rules and regulations. This typically requires that one combined tax rate is collected on each sale but it needs to be separated out for purposes of being remitted. Thus, separate returns and payments are required for every jurisdiction where the business has nexus. For example, in Denver, CO, the city and county have both been granted Home Rule status. Purchases in Denver are levied a sales tax of 7.62% (4% for state plus 3.62% for city/county). When the business reports the sales tax, it reports those amounts separately even though they are combined when collected.
Home Rule makes sales tax increasingly complex. However, it’s nothing that can’t be navigated with a little know-how. Taxify covers businesses in all 50 states and all localities within Home Rule states. Contact us for help with this and other complex sales tax issues. Or, sign up for one of our upcoming demos to learn more.
Stay on top of the sales tax challenges your business faces with Taxify by Sovos.