4.2.2 Political Subdivision – Sovereign Powers Requirement

For purposes of the Tax Code, a political subdivision is any division of a state or local governmental unit that is a municipal corporation or that has been delegated the right to exercise part of the sovereign power of the unit. The three generally recognized sovereign powers are power to tax, power of eminent domain, and police power. Although it is not necessary that all three sovereign powers be delegated, possession of only an insubstantial amount of any or all sovereign powers is not sufficient. When determining whether an entity is a division of a state or local government, all of the facts and circumstances are relevant, including the extent to which the entity is controlled by the state or local government and motivated by a wholly public purpose.