What you need to know about the Colorado retail delivery fee now
A fee on retail deliveries took effect in Colorado on July 1, 2022, mere weeks after it was announced. Everyone, including the Colorado Department of Revenue, could have used a bit more time to prepare.
Updating a sales system to account for a net-new fee takes more than flipping a switch, so many businesses simply couldn’t charge customers the fee on the day the fee went into effect. A problem, since Colorado law requires the fee to be separately stated on invoices and receipts, and paid by customers.
The Colorado Department of Revenue wasn’t in a much better position. During the stakeholder meeting, it conceded that it didn’t know whether the United States Postal Service (USPS) could be considered a person for the purposes of the fee. In other words, it wasn’t sure whether deliveries made by the USPS would be subject to the fee.
The department didn’t have the authority to delay the effective date; it was obliged to start collecting the fee on July 1. But as it explained during a stakeholder meeting on June 23, 2022, it could and would take a lenient approach toward enforcing certain requirements “for the foreseeable future.” Unfortunately, no one knows how long that will last.
Note that the department expects businesses to make a good faith effort to collect and remit the fee as required.
What types of businesses are subject to the retail delivery fee?
Any retailer licensed to make sales in Colorado must collect the 27-cent fee on all deliveries made by motor vehicle to a location in Colorado that include at least one item of taxable tangible personal property in the shipment.
This includes, but isn’t limited to:
- Brick-and-mortar retailers
- Ecommerce sellers
- Grocery stores
What types of transactions are subject to the retail delivery fee?
The fee applies to any delivery containing at least one item that’s subject to Colorado sales tax and made by motor vehicle. This includes:
- Alcoholic beverages
- Food (groceries and takeout)
- Other stuff
Deliveries of business-to-business (B2B) retail sales are also subject to the fee, but wholesale sales are exempt.
You can find more information about the fee in these articles:
What have we learned about the fee since it took effect?
Home rule sales taxes may apply to the retail delivery fee
One question in need of an answer when the retail delivery fee took effect was whether it was subject to sales tax in home rule cities. Colorado state sales tax doesn’t apply to the fee, but the department understood that local sales tax could apply to the fee in some home rule jurisdictions. We now know more.
As of September 23, 2022, nearly 30 home rule jurisdictions have confirmed that the retail delivery is subject to local sales taxes. These include Boulder, Castle Pines, and Sheridan. Some of these jurisdictions are working toward exempting the fee; these include Fort Collins, Greeley, and Littleton.
About 25 home rule jurisdictions have confirmed the retail delivery fee is exempt. These include the city and county of Denver, Loveland, and Vail.
When in doubt, the department advises taxpayers to contact municipalities directly. Contact information for self-collecting jurisdictions can be found in the department’s sales/use tax rates publication, DR 1002.
USPS deliveries are subject to the retail delivery fee
Yup, the department has decided that retail deliveries of taxable goods delivered by the USPS are subject to the fee if delivered by motor vehicle to a location in the state.
The retail delivery fee is not refundable if items are returned
Should a customer return an item that was subject to the retail delivery fee, that customer would be eligible for a refund of applicable sales tax. However, the Department of Revenue will not refund or provide a credit for any retail delivery fees collected by the retailer and paid by the customer. Retailers may refund the fee out of pocket.
Retailers may be able to claim a credit on overpayment of the fee
If a retailer overpaid the fee on a previously filed return, that retailer may be able to claim a credit on their current return against the amount owed. Yet the department is clear: “Credit cannot be claimed for an overpayment on a current period if the retailer filed an amended return for the prior period or the department adjusted the fee for the prior filing period.”
The fee applies to applicable deliveries made by third parties
If a delivery is subject to the retail delivery fee, the fee applies no matter who owns or operates the vehicle used to deliver the goods: the retailer, a third party, or a shipping company hired by the consumer.
Additional details can be found on the Colorado Department of Revenue website.
How will the retail delivery fee impact future policies?
At this point, it’s hard to say. If it proves to be a successful source of revenue for Colorado, it may pique other states’ interest.
Currently, motor fuel taxes and fees on motor vehicle ownership fund most road construction and maintenance projects in most of the United States. As more drivers switch to electric and hybrid vehicles, revenue from federal and state motor fuel taxes will invariably decrease. This puts governments in a conundrum — especially states like California and New York, which plan to ban sales of nonelectric vehicles by 2035.
Scott Peterson, vice president of Government Relations at Avalara, says several ideas are being tested around the country to address the reliance on motor fuel taxes. One option is to charge drivers a fee based on the number of miles driven. President Biden is interested in exploring a vehicle miles traveled (VMT) tax at the federal level; California, Oregon, and Utah have run state pilot projects based on the idea.
The Tax Foundation says many economists support a VMT tax, but admits “developing an equitable and effective VMT tax will be no small feat.” There are privacy issues, for one. It will take time for a VMT tax to get off the ground.
In the meantime, Colorado is taking a different approach and boosting transportation funds with the new retail delivery fee, new fees on passenger rides provided by transportation network companies, and new fees on electric vehicle registrations.
The retail delivery fee could end up being a good alternative source of transportation funds. But the question remains: Is it the most efficient, effective, and rational way to fund a state’s transportation needs? All sorts of businesses are finding it difficult and expensive to implement. Could it be more trouble than it’s worth? (Already, at least one lawmaker is thinking about amending the law to eliminate the requirement that it be listed on the invoice.)
If any other states follow Colorado’s lead on this, let’s hope they use Colorado as a cautionary tale and give businesses (and state officials) adequate time to implement it.
If you’re already an Avalara customer, you can find helpful information about how Avalara AvaTax handles the fee in our help center.
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