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The Trouble With Home Rule Jurisdictions



The Trouble With Home Rule Jurisdictions

Over the past two years following the 2018 Wayfair decision, which has allowed more than 40 states to implement economic nexus legislation, we’ve seen these laws affect retailers in sometimes unexpected ways.

Take, for example, home rule jurisdictions. In a post-Wayfair world, the tax burden they create can come as a rude awakening for retailers and legislators alike.

In an already complex online sales tax environment, where every state has its own economic nexus thresholds and requirements, home rule jurisdictions add yet another layer of complication.

What Is Home Rule Jurisdiction?

In this context, “home rule” refers to local governments, including cities and counties, that are given the authority to establish and levy their own sales taxes, separate from state sales tax regulations.

A handful of states, including Alabama, Alaska, Arizona, Colorado and Louisiana, allow self-administering local tax authorities. Much like economic nexus laws, tax regulations vary wildly between home rule jurisdictions, even within the same state.

What Does This Mean For Retailers?

Ever since the Wayfair decision, retailers have been scrambling to properly comply with economic nexus legislation and correctly collect and remit online sales taxes. For smaller companies that trigger economic nexus through sales thresholds (which also vary depending on the state) but don’t have extensive accounting departments, this new tax burden is daunting.

While there has been progress made to simplify and streamline economic nexus across the country, the regulations remain a drain on resources for many smaller businesses.

As stated above, home rule jurisdictions add an additional level of complexity. The complication comes from three main sources: the regulations themselves, the need to submit separate returns for each jurisdiction and the fact that each jurisdiction can choose to audit the seller.

What States Are Doing To Ease The Tax Burden

To the relief of many retailers, a number of states are taking the burden these home rule jurisdictions create seriously and have regulations to simplify the process.

In Alabama, remote sellers can apply for a Simplified Sellers Use Tax, which allows them to collect, remit and report at a flat 8 percent for all sales into the state. The Louisiana Department of Revenue has a similar program, offering a Direct Marketer Sales Tax Return, with a flat combined rate of 8.45 percent.

In Alaska, the Alaska Intergovernmental Remote Seller Sales Tax Agreement, created by local governments and facilitated by the Alaska Municipal League, serves as a central organization for seller registration, return collection, tax fund distribution and audits.

As the online sales tax environment continues to evolve post-Wayfair, we expect to see additional refinements to economic nexus legislation and home rule regulations from states to make the process easier for both retailers and state agencies.

Do You Have Questions About Home Rule Jurisdictions?

Contact Monika Miles And Team.

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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