Home rule cities, counties and other local governments collect and administer sales and use tax independently from the state. They set sales and use tax rates and taxability rules within defined geographic locations. If you have nexus in one of these home rule jurisdictions, you’ll potentially have another layer of tax compliance to contend with.
In the wake of Wayfair, more sellers are now being required to collect state and local sales taxes. Five states – Alabama, Alaska, Arizona, Colorado and Louisiana – have provisions for home rule. Several of these states are now taking action to simplify this added layer of taxation created by permitting home rule.
Businesses selling into these self-administered jurisdictions may be required to file sales and use tax returns in addition to broader state requirements. Out-of-state sellers must determine when sales tax must be collected and what rate applies as well as what government payments must be remitted and to whom. In addition to sales tax rates, local jurisdictions in home rule states can make separate determinations about what’s taxable. This can make a product or service taxable in one part of a state and exempt in another.
The state of home rule may be shifting. Several states are taking steps to simplify their home rule policy.
Alabama. Established a flat 8% Simplified Sellers Use Tax (SSUT) on all sales shipped into the state.
Alaska. Working toward a single-level, statewide administration of online sales tax collection and administration.
Arizona. As of October 1, 2019, remittance for state and local transaction privilege taxes (TPT) will be centralized under the Arizona Department of Revenue; licensure is still separately administered.
Colorado. 71 home rule municipalities determine local sales and use tax, including sales taxes on items exempt from state sales tax. A legislative tax task force continues to work on centralizing collections and other simplification tracks but Colorado lags other home rule states in simplification efforts. (see The Fix is on.)
Louisiana. Moving toward a single, state-level tax administrator for remote sales.
Staying compliant with home rule jurisdictions is best managed with sales tax automation. Email me to find out how.
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Judy Vorndran can be reached at jvorndran@taxops.com.
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