My solution (HOWTO)

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http://forums.oscommerce.com/viewtopic.php?p=209379#209379
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OK, after reading this and other threads several times, I have found a solution that works for me.  Since it took me some time to figure it out, I thought I would post here and hopefully it would help others.  I basically did what hpdl suggested earlier in this thread.  It just took me a while to figure it out.  I am in Loveland Colorad.   I am required to collect tax for the State , County and City that I am in.  Here is what I did..

In the admin menu

I selected "Locations/Taxes -> Zones"

Then I selected "New Zone"

I Created the following
Country             Zone   Code
United States     Colorado, Larimer County       CO(LAR)
United States     Colorado, Loveland             CO(LVLD)

I then selected "Locations/Taxes -> Tax Zones"  And added the following 
tax zones that pointed to the respective zones created previously and one 
pointing to just Colorado

  Colorado
  Larimer County
  Loveland

Then I selected Locations/Taxes -> Tax Rates   And added the following
with the comments as indicated for the buyer to see on their sales transaction page:

  Colorado            2.9   CO State Tax (2.9)
  Larimer County   3.7   CO State(2.9) +Larimer Cty (.8)
  Loveland            6.8   CO State (2.9) + Larimer Cty (.8) + Loveland(3.0)


I am going to add enough documentation to my site to explain how to set this up correctly.  I may even try to add a popup or something when they go to choose a state about Colorado.   When a user creates an account and chooses Colorado, they will need to select one of the three options above.  I believe I will be covered by doing this.