Colorado has amended last year’s Retail Delivery Fee law to exempt qualified small businesses and to streamline the administrative requirements for companies that are not exempt from remitting the delivery fee.
In 2022, the state passed a mandatory 27-cent retail delivery fee, effective July 1, 2022, for any purchases of tangible personal property that are delivered by a motorized vehicle, including from out-of-state or by a third party, and are subject to state sales tax. Physical and online retailers must collect and remit the fee as part of their state sales tax filings.
The delivery fee is designed to raise funds to improve Colorado’s transportation infrastructure, create electric vehicle charging stations, promote mass transit, and reduce air pollution.
Small Business Exemption Begins July 1, 2023
On May 4, 2023, the Retail Delivery Fee law was amended to exempt qualifying retailers with less than $500,000 in sales during the prior calendar year. The legislation amending the law to exempt small businesses cited the administrative costs associated with collecting and remitting the fee and said those costs should be borne by larger companies that could better afford them.
Companies Can Remit Fees on Behalf of Customers
In another effort to streamline the administrative costs for companies that are not exempt from the Retail Delivery Fee, Colorado offers the option of remitting the fee for the required transactions without collecting the fee from specific customers.
This change was made in response to retailers’ concerns that, in many instances, their invoicing software would need to be updated to list the fees. In addition, collecting and remitting the fee for individual transactions could create significant administrative challenges.
Under the new law, companies can aggregate the number of delivery transactions and pay the total amount to the state.
For companies that are not exempt from the Retail Delivery Fee, the fee will increase to 28 cents on July 1, 2023.
Other States Adopting or Considering Retail Delivery Fees
The idea of imposing retail delivery fees expands to states outside Colorado, most recently Minnesota and New York.
In late May, Minnesota adopted a 50-cent retail delivery fee for transactions valued at $100 or higher that include a retail delivery in the state. The fee, which becomes effective July 1, 2024, will be imposed on each retailer or marketplace facilitator making deliveries of tangible personal property or clothing within Minnesota.
Minnesota exempts “small businesses,” which the law defines as retailers with less than $1 million in sales during the previous calendar year, or a marketplace provider that facilitated retail sales of less than $100,000 during the previous calendar year.
A retailer collecting the fee from purchasers must identify the state’s “road improvement and food delivery fee” separately on the transaction’s invoice or bill of sale.
Similarly, New York legislators have proposed delivery fees for retail delivery transactions statewide, and a separate proposal includes fees for online deliveries within New York City.
As more states enact or consider similar fees, retailers operating in multiple states must adjust their systems to account for a complex menu of varying fees and exemptions, in addition to sales and use tax, within certain jurisdictions.
Contact us to learn more about changes to the law and the implications for your business.