I did something similar for a franchise.  What we did was set up all earning/deduction codes with a two letter prefix that matches the state where the employee could work.  The meant that there would be AZHRLY, TXHRLY, NVHRLY, AZHLTH, TXHLTH, NVHLTH, etc.  Then you can set up the state taxes to each related earning/deduction code.  If the employee as AZHRLY earnings then the appropriate tax calculations take place.

Now, if you need to do this at the city level... yuck.  If you're only operating in one state then, in theory, you could have a set of earning/deduction codes for each city (or where the jurisdictional tax rates will be different).  Much like sales tax, however, that can quickly become unwieldy.

Alternatively if there is a way to calculate the city taxes manually then you could run your payroll calc in two steps.  The first with $0 local taxes on the timecard, calculate the local taxes and then update the timecards and re-calc.