Home rule cities in Colorado create complexity and add a layer of work for taxpayers. Why are there home rule jurisdictions and where do clients get caught unaware?
By Tram Le and Connie Zoerink
When it comes to home rule cities in Colorado, there are so many moving parts creating complexity and adding on a layer of work for taxpayers. Colorado has 70 jurisdictions that administer their own sales and use tax sales and or use tax. For taxpayers, this means extra administrative work, research and some digging to really understand the issues and how to comply in each of these jurisdictions.
What’s the history home rule jurisdictions?
We’ve been involved for a long time with CGFOR (Colorado Government Finance Officers Association), more specifically the Tax Auditor Coalition where each of Colorado’s home rule auditors periodically meet to brainstorm best practices and discuss what’s going on in their jurisdictions.
Our understanding from talking with these auditors is that home rule jurisdictions stem from a desire to exercise more control over their revenue collections. Previously, the state of Colorado collected taxes on behalf of these cities and would allocate and disperse tax revenue as received.
But a lot of the cities were not getting their money timely or found errors in the amounts that were remitted back to them. Cities became “home rule” when they decided to take revenue collection in-house and have been doing so for quite a while now.
What are the main pain points that your clients deal with?
Properly identifying a taxpayer’s nexus footprint, which creates a filing obligation. In Colorado, determining nexus is unlike other states because state and local nexus rules do not necessarily follow the state and can differ.
Also, determining what’s taxable in each home rule jurisdiction will be important. Cities, again, have their own ability to tax different items as well as exempt specific items and entities from tax. This is where it becomes really complicated, really fast and it is exponentially complicated for taxpayers to comply when there are multiple jurisdictions to consider. There are different registration requirements, licensing requirements, licensing renewal requirements, filing frequencies, you name it. Anything that you could come up with is probably something that complicates the matter of home rule jurisdictions.
Businesses are often caught unaware. As such, business must understand these nuances in Colorado and other home rule states. Work with your TaxOps advisor to develop a procedure for managing home rule jurisdictions and taxpayer nexus for an overall less painful compliance process.
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