Sales tax complexity example

Colorado map from the USGS

Many local governments have sales tax in addition to the state's sales tax. Tax rates likely vary among local entities. Thus, it is necessary to define that local jurisdiction.  We might assume that should be easy because it would be based on the name of the city or the zip code - something easily known. But, that is not true, there are many areas where zip codes do not tie to the local sales tax rate.

Thanks to Karen Davis of T.M. Byxbee Company, P.C. in Connecticut for pointing out to me an example of the complexity that can exist in trying to determine the proper sales tax rate to charge.  The Colorado Department of Revenue has a web tool where you can determine the local sales tax.  For some of the jurisdictions though, you'll also need a map to determine the rate. For example, here is the description provided for the city of Aurora (emphasis added). Also note that unlike other states, such as California, there might be separate filing obligations for the cities (rather than reporting everything on one sales tax return).

"AURORA:
The city sales tax rate is 3.75%. Please note that this is a Home Rule City. The Colorado Department of Revenue does NOT collect sales tax for home rule cities. Aurora is located in three counties: Arapahoe, Adams and Douglas.

ADAMS COUNTY:
The county sales tax rate is 0.75%. The Regional Transportation District sales and use tax of 1.0% applies in Adams County West of Box Elder Creek. The Scientific and Cultural Facilities District sales and use tax of .1% applies to all of Adams County.

ARAPAHOE COUNTY:
The county sales tax rate is .25%. The Regional Transportation District sales and use tax of 1.0% applies to that portion of Arapahoe county which is south of Interstate 70 and west of Picadilly Road to Jewell, and west of Gun Club Road to Quincy, and generally west of Monaghan Road, including Arapahoe Park and Aurora Reservoir.  The Scientific and Cultural Facilities District sales and use tax of 0.1% applies to all of Arapahoe County.

DOUGLAS COUNTY:
The county sales tax rate is 1.0%. The Lincoln Station Local Improvement District near Interstate 25 on Park Meadows Drive has a sales tax of .5%. The northeast portion of Douglas County, Highlands Ranch, the Park Meadows Mall area, Lone Tree, Acres Green, and Lincoln Station LID are located in the Regional Transportation District, which has a sales and use tax of 1.0%.  The Scientific and Cultural Facilities District sales and use tax of .1% applies to all of Douglas County except in the towns of Castle Rock and Larkspur."

To see others, go to the Department's website and click on "View Local Sales Tax Rates."

Can it be easier?  YES.  One easy approach would be to have just one rate per state with some portion of that going to cities. That might not be politically easy as each local jurisdiction might have varying needs for sales tax revenues depending on other sources of revenues and spending their needs. I think though, that cities and counties would be well-served by working to get to one-rate-per-state because it would then be easier for vendors to collect and remit sales tax. And perhaps Congress would be more willing to enact the Marketplace Fairness Act if sales tax collection were easier. There would still be a need to identify the location of the buyer to get the sales tax to the correct place, unless there is reliable data on spending among local jurisdictions so that the total local portion could be apportioned among local jurisdictions using that data.

What do you think?