Home rule cities are municipalities that have been granted a greater degree of self-governance by their state governments. This means they have more autonomy to make decisions about local issues such as zoning, taxation, and public services, without needing explicit permission from state legislatures. This special status lets them pass local laws and sometimes even bypass state legislation when it doesn’t align with local priorities. Home rule gives cities the tools to handle their own affairs more directly and effectively and to create more targeted solutions to the issues their residents face.

Colorado has more than 100 home rule municipalities, including major cities such as Denver and Boulder, and 66 of those administer their own local sales and use taxes. Below, we’ll explain what Colorado’s home rule cities are, how they operate, and what impact their particular kind of governance has on businesses there.

What's in this article?

• What are home rule cities allowed to do?
  
• What are Colorado’s home rule cities?
  
• How do home rule cities in Colorado impact the sales and use tax system?
  
• How are businesses impacted by Colorado’s home rule cities?
  

What are home rule cities allowed to do?

Home rule cities typically have a high level of autonomy, which allows them to address local matters more directly and with more flexibility than cities without this status. Here’s a closer look at what they can do with their special status:

• Set their own laws: Home rule cities can pass laws and ordinances specific to their local circumstances that might not be possible otherwise under state law. These laws can cover a wide range of issues, from zoning and land use to public health and safety.

• Control their own finances: Home rule cities often have more control over their financial resources, including local taxes, fees, and budgets. This lets them more easily fund projects and services that are most relevant to their residents.

• Structure their own governments: These cities can structure their own governments and elections in ways that best fit their size and style of governance. This could mean deciding whether to have a mayor-council or council-manager system, or determining how officials are elected.

• Manage their own public services: With more control over local matters, home rule cities can create, modify, and manage public services such as police, firefighting, education, and transportation services.

• Adapt to changes: Home rule cities are generally better equipped to respond to swift changes in their local environments, whether those changes are economic shifts, demographic changes, or emergencies. Home rule enables quicker, more specific responses than might be possible under state-managed systems.

What are Colorado’s home rule cities?

Many cities and towns in Colorado have adopted home rule charters. The following resources offer a comprehensive list:

• Colorado Department of Local Affairs (DOLA): DOLA is the official state agency that oversees local governments. Its website breaks down how each city is classified.

• Colorado Department of Revenue (DOR): This 2024 DOR document lists which home rule cities the state doesn’t collect local sales tax in.

• Colorado Municipal League (CML): The CML represents the interests of municipalities and has a member directory where home rule cities are marked with an asterisk.

Here are some notable examples of Colorado’s home rule cities:

• Denver: Denver has a consolidated city and county government, which operates under a charter that grants it broad powers to govern everything from police and fire departments to utilities and transportation systems. This allows Denver to address issues such as homelessness and city planning with specific tactics suited to its environment.

• Boulder: Boulder’s home rule status enables it to enact environmental regulations that are more stringent than those of the state. These include regulations on energy efficiency, waste reduction, and building codes to promote sustainability. Boulder’s local government also uses its powers to maintain a unique city layout and restrict certain types of development.

• Colorado Springs: Known for its economic initiatives, Colorado Springs uses its home rule status to create favourable conditions for business and technology sectors and manage local infrastructure projects.

• Fort Collins: Fort Collins uses home rule to implement innovative transportation and environmental policies. The city has been able to launch municipal initiatives that aim to reduce greenhouse gas emissions and promote renewable energy sources.

• Aurora: Home rule powers help Aurora to manage its diverse, growing population. The city focuses on public safety and housing initiatives that are designed to meet the needs of its residents. Aurora also uses these powers to attract and manage business development that aligns with local economic goals.

• Lakewood: In Lakewood, home rule is primarily used for land use and zoning decisions. The city has developed a comprehensive plan that balances growth with the preservation of community character and natural resources.

• Pueblo: Pueblo’s use of home rule includes cultural preservation and revitalisation of its historic downtown area. The city also focuses on industrial development and has the autonomy to create local incentives to support the steel industry and new enterprises in renewable energy.

How do home rule cities in Colorado impact the sales and use tax system?

Home rule cities in Colorado are authorised to administer their own taxes independently of the state, and this has a large impact on the sales and use tax system. Here’s how the system is affected:

• Local tax rates: Home rule cities can set their own sales and use tax rates. This results in a patchwork of tax rates across the state, where neighbouring cities might have noticeably different tax burdens.

• Tax base variations: Home rule cities might also define taxable items differently. What is taxable in one city might be exempt in another. This creates discrepancies in how a business manages its sales tax obligations, depending on its location.

• Separate tax collection processes: The majority of home rule cities have chosen to file taxes via the Sales & Use Tax System (SUTS), a centralised portal administered by the state of Colorado. However, a few home rule cities administer their own tax collections. This means businesses in those cities must file separate tax returns for state and local taxes if they operate in these jurisdictions. This can complicate compliance for businesses that operate in multiple cities as they need to be aware of and adhere to multiple tax codes and filing processes.

• Tax compliance complexity: The autonomy of home rule cities makes compliance complex for businesses. Companies must track and comply with varying tax regulations across different cities.

• Economic decisions and business strategy: The autonomy in tax policy can influence economic decisions and business strategies. Companies might decide where to locate or expand their operations based on the favourable or unfavourable tax regimes of different home rule cities.

• Legal and policy challenges: The diversity in tax policies among home rule cities can lead to legal and policy challenges. Disputes over tax jurisdiction or the applicability of certain taxes in specific scenarios can arise, sometimes leading to litigation or the need for state-level clarification.

• Impact on customers: Customers can feel the impact directly through different prices for goods and services depending on the local sales tax. In areas with higher local taxes, prices might be higher. That can influence shopping behaviours and economic activity across regions.

How are businesses impacted by Colorado’s home rule cities?

Here are some of the ways businesses are affected by Colorado’s home rule cities:

• Varying tax rates and rules: Each home rule city can set its own sales and use tax rates, rules, and exemptions. This creates a patchwork of local tax laws and can make compliance challenging for businesses that operate in multiple jurisdictions. They need to understand and apply the specific tax rules of each city, track sales data, and file separate tax returns for each jurisdiction.

• Self-collection and remittance: Home rule cities that self-collect sales and use tax require businesses to register with the local tax authority, collect taxes from customers, file returns, and remit taxes directly to the city. This adds to the administrative burden of selling in home rule cities compared to doing so in cities without home rule, where the state handles tax collection and remittance.

• Economic nexus: Most home rule cities have adopted economic nexus provisions, requiring remote sellers and marketplace facilitators with a certain amount of sales within the city to collect and remit local sales tax even if they don’t have a physical presence there. This can impact online sellers and businesses that operate across multiple jurisdictions.

• Expanded tax base: Home rule cities can expand their tax bases beyond the state sales tax by taxing items or services that are exempt at the state level, such as food for home consumption and construction materials. This can increase the cost of doing business in these cities and create confusion for businesses and customers regarding taxable items.

• Administrative burden: While SUTS simplifies tax filing for most home rule cities, each one might have different registration, filing, and reporting requirements, adding to the administrative complexity for businesses. They might need to invest in tax compliance software or hire additional staff to manage compliance with the local tax laws.

• Local economic development: Home rule cities can use the revenue generated from sales and use taxes to fund local infrastructure projects, public services, and economic development initiatives, which can benefit businesses in the long run.

• Customised regulations: Home rule cities have more flexibility to set regulations that meet the specific needs of their communities, which can sometimes be more beneficial for local businesses than statewide regulations.