Colorado retail delivery fee guide: What you need to know

This post has been updated. It was originally published in October 2022.

A fee on retail deliveries took effect in Colorado on July 1, 2022, mere weeks after it was announced. More than two years have passed since those stressful early days, but complying with the Colorado retail delivery fee remains challenging for many businesses.

If you’re struggling to comply with the delivery fee in Colorado or are preparing to pay it for the first time, read this blog post to learn:

• What is the Colorado retail delivery fee?
• Who is subject to the retail delivery fee?
• What types of transactions are subject to the retail delivery fee?
• How will the retail delivery fee impact future tax policies?
• Colorado retail delivery fee FAQs
• Compliance considerations

The Colorado retail delivery, or RDF, is a fee on retail transactions that:

• Contain at least one taxable item

• Are delivered by motor vehicle to a location in Colorado

Initially 27 cents, the retail delivery fee is 29 cents through June 30, 2025.

The delivery fee applies to all sorts of retailers, including brick-and-mortar retailers, ecommerce sellers, florists, grocery stores, and restaurants.

Retailers and marketplace facilitators that collect Colorado sales and use tax on sales of tangible personal property sold and delivered in the state are liable for the RDF — unless they qualify for an exemption.

Businesses with $500,000 or less in total retail sales in Colorado in the prior year are exempt from the retail delivery fee. For a business that had no retail sales in Colorado during the previous calendar year, the exemption applies until the first day of the filing period that begins at least 90 days after it exceeds the $500,000 threshold.

Any business that doesn’t have nexus with Colorado and therefore isn’t required to collect Colorado state sales tax is also exempt from the Colorado RDF.

Sales tax nexus, a connection that creates a sales tax obligation for a business, is established by having a physical presence in Colorado or by meeting Colorado’s economic nexus threshold: more than $100,000 in retail sales of tangible personal property, commodities, or services in the state in the current or previous calendar year.

The RDF 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
• Appliances
• Electronics
• Flowers
• Food (groceries and takeout)
• Furniture
• Other stuff

Deliveries of business-to-business (B2B) retail sales are also subject to the RDF.

Note that Colorado’s retail delivery fee applies once per transaction no matter how many separate shipments are used to deliver all the goods.

The Colorado RDF does not apply when:

• Every item in a transaction is exempt from Colorado sales tax

• The purchaser picks up the item at the retailer’s business location

• The delivery is made entirely without the use of a motor vehicle 

• The delivery contains only wholesale sales made to a licensed retailer for resale 

Colorado’s RDF has already inspired one knockoff: A similar-but-different retail delivery fee took effect in Minnesota on July 1, 2024. A Washington state retail delivery fee could be next. 

In June 2024, the Washington State Legislature Joint Transportation Committee published a report outlining the pros and cons of a 30-cent retail delivery fee. If the Washington Legislature introduces a bill for a delivery fee during the 2025 legislative session as expected, it will likely inspire heated debates.

Other states that have studied the possibility of a retail delivery fee include Maryland, Nebraska, and New York.

Yes. The Colorado RDF has risen by three cents since it took effect:

• 27 cents: July 1, 2022–June 30, 2023 
• 28 cents: July 1, 2023–June 30, 2024 
• 29 cents: July 1, 2024–June 30, 2025
• TBA: July 1, 2025–June 30, 2026

Initially, retailers were required to collect the retail delivery fee from customers. However, with the enactment of SB23-143 on May 14, 2023, businesses can opt to pay the retail delivery fee themselves.

The retail delivery fee is not subject to Colorado state sales tax or state-administered local taxes. However, home-rule sales tax may apply in self-collected jurisdictions.

When it first took effect, the RDF was subject to home-rule sales taxes in roughly 30 jurisdictions. Many self-collecting home-rule jurisdictions have provided a sales tax exemption for it since then, or clarified that the retail delivery fee is not subject to the local sales tax. These include Breckenridge, Commerce City, Denver, and Steamboat Springs.

If you’re not sure whether the RDF is subject to a home-rule sales tax, 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.

Yes, taxable goods delivered by the USPS are subject to the RDF if delivered by motor vehicle to a location in the state, unless the retailer qualifies for an exemption.

Retailers may not refund the RDF when a customer returns an item that was subject to the retail delivery fee. However, that customer would be eligible for a refund of applicable sales tax.

Colorado allows retailers to claim a credit for previously paid retail delivery fees provided 1) the retail sale was canceled before the item was shipped, and 2) the retailer refunded the full purchase price to the purchaser (plus applicable sales tax).

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.

The Colorado Legislature enacted the retail delivery fee in 2021 to fund transportation. Revenue from the fee goes to the Highway Users Tax Fund, the Multimodal Transportation and Mitigation Options Fund, and five enterprises:

• Bridge and Tunnel Enterprise
• Clean Fleet Enterprise
• Clean Transit Enterprise
• Community Access Enterprise
• Nonattainment Area Air Pollution Mitigation Enterprise 

The advent of electric and hybrid vehicles as well as more fuel-efficient gas-powered automobiles has led to a decline in gas tax revenue across the United States, even though some states have raised fuel tax rates. Gas tax revenue currently makes up 37.6% of overall state transportation revenue, compared with 41.1% in 2018, according to the National Association of State Budget Officers.

A fee on retail deliveries is one way to replenish transportation funding, but it’s certainly not the only option. Several states have implemented new annual registration fees for electric and/or hybrid vehicles, for example, and two states have adopted an EV public charging station fee. Some states are also looking to charge drivers a fee based on the number of vehcile miles driven (VMT), though as the Tax Foundation has observed, “developing an equitable and effective VMT tax will be no small feat.” 

A retail delivery fee like the ones now in effect in Colorado and Minnesota could end up being a good alternative source of transportation funds. But the question remains: Is a retail delivery fee the most efficient, effective, and rational way to fund a state’s transportation needs?

Delivery and freight charges for exempt transactions are exempt from Colorado sales tax. 

Delivery and freight charges for taxable transactions generally aren’t subject to Colorado sales tax provided the charges are separable from the purchase price and separately stated. 

Per the Colorado Department of Revenue, “The charges are considered separable from the purchase if they are for service performed after the property is offered for sale and the seller allows the buyer to use the seller’s transportation service or to use alternative transportation service, including but not limited to the buyer picking up or taking the property from the seller's location.”

See the Colorado Department of Revenue website for more information about the retail delivery fee.

Updating a sales system to account for a retail delivery fee takes more than flipping a switch. If you’re already an Avalara customer, you can find helpful information about how Avalara AvaTax handles the fee in our help center.

If you don’t have an automated solution for sales tax, discover the benefits of automating tax compliance. 

Related articles:

• Colorado’s new retail delivery starts July 1, 2022
• Colorado answers questions about new retail delivery fee
• Colorado may simplify retail delivery fee requirements
• Colorado retail delivery fee complicates winery DTC compliance
• New Minnesota retail delivery fee starts July 2024
• Are you ready for the Minnesota retail delivery fee?