".local" is mDNS for the local network, but tor assumes localhost
tor_addr_hostname_is_local labels hostnames ending in ".local" as resolving to the loopback address. But ".local" is used for multicast DNS, so some names ending in ".local" may be on the local network(s), and not on 127.0.0.1 or ::1 or the associated netblocks.
However, the current implementation is probably doing the right thing anyway, as allowing ".local" over SOCKS/Tor could open up access to servers or devices on Exit relays' local networks, which has security implications.
This may require a documentation change, or perhaps refactoring and review of all uses of
tor_addr_hostname_is_local to see if they want only localhost, or local networks as well.