Local governments are given wide discretion in levying sales taxes. As a result local sales taxes are relatively high while state sales taxes are relatively low. There is a wide diversity in the tax systems imposed by local governments in Colorado. Our 78 home rule cities and towns have a good deal of latitude in determining their local tax policy, as compared with the other 190 municipalities and roughly 1,800 non-municipal governments. Home rule flexibility includes allowing municipalities to set their own sales tax rates without limit, establish their own sales tax bases by defining what is exempt from sales tax, and collecting their own sales tax revenue.
Tax competition results in a wide diversity in local sales taxes.
Multiple taxing entities with differing rates and bases may make administration difficult for businesses with outlets in more than one location. But from the taxpayer s point of view, geographical competition is created by different sales tax rates. Developers tend to locate retail establishments in areas which have lower sales tax rates, and especially where there is no chance of an annexation by proximate municipalities. Our citizens value the control that local property taxes give them in determining the optimum levels of libraries, schools, transportation, and other public services. There are problems associated with the use of local property taxes to finance these public services.