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Municipalities in the US can:
Make laws that apply to all people who find themselves within their boundaries.
Tax residents.
Tax economic activity (e.g. sales).
Arrest people and apply other police powers.
Where do municipalities get the authority to make all of these impositions on people? Can an individual buy up a parcel of land, declare it to be a municipality, make arbitrary laws, and use armed police to enforce those laws? Clearly not, but why not?
A common phrase regarding US cities is, "cities are creatures of the state." All of their authority comes from the authority granted states, and states can limit the authority of cities, counties and their other political subdivisions. In the US cities cannot have additional authority beyond the authority the containing state has, as opposed to, for example, cities granted Royal Charter in the United Kingdom, which may have equal or greater authority than their containing counties.
Most states have constitutional and legal descriptions of what powers cities and towns can exercise. Recently many cities have begun passing laws to ban things like plastic grocery bags or hydraulic fracturing, and states have then passed laws to remove that authority from cities.
States also set requirements for creating new towns. In Texas, any town smaller than 5,000 population is a general law town. General law towns have very little authority to create laws, but they can have a police force to enforce state laws. A city in Texas with population larger than 5,000 people can enact a charter by popular vote and become a home rule city. Home rule cities in Texas can enact some laws with criminal punishments (only citations and class C misdemeanors) and have greater taxing authority, but really can only pick from a menu of options created by the state.
In California, cities/counties/municipalities get the ability to govern from the California Government Code.
Similarly, in Washington State, Title 35 regulates cities.
You'll find similar statutes in every state.
The first stop is to look at your state constitution. In Washington, article XI Sect 1 recognises the existing counties at time of statehood as legal subdivisions (there is a provision for rearranging counties). Section 4 directs the legislature to create a uniform system of county government and for township government via majority vote of the electorate. Counties have the option of establishing a "Home Rule" charter, which allows the county to make rules. Section 10 allows the creation of municipal corporations, and in cities of 10,000 or more inhabitants, the corporation (city) has the the power to make local law. The legislature then enacted RCW Title 35, which fleshes out powers of cities and towns, Title 35A which is about "optional municipal code", and counties are regulated / authorized under Title 36. Specific authority is sprinkled thoughout these titles like powdered sugar on a doughnut.
