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Free Will Impacts Sales Tax

  • Aug 26, 2015 | Gail Cole

 Delivery charges may or may not be subject to sales tax in Colorado.

The long-standing theological and philosophical debate over free will and determinism/predestination has finally reached the realm of sales tax. A Colorado restaurant that separately states its delivery charges needs to know if those charges are subject to Colorado sales tax or exempt. The answer boils down to whether or not the customers have the choice to pay for those delivery charges.

The Colorado Department of Revenue (DOR) has responded with a General Information Letter, which “provides a general overview of the relevant tax issues and is not binding on the Department.”

Pick up or delivery?

Customers may order at the restaurant, by phone or on the restaurant website. They may pick up the food they order or they may have it delivered. If delivery is chosen, the restaurant adds a delivery charge to the invoice and that charge is separately stated. Customers who pick up their food do not pay the delivery charge.

Although customers are given the choice to pick up their food, they are not informed when they order that there is a charge for deliveries. This, it turns out, is an essential piece of information.

As explained by the DOR, “Colorado generally does not levy sales tax on the sale of services. Transportation of tangible personal property between a retailer and a purchaser is generally considered a service and, thus, is not subject to sales tax.” Transportation/delivery charges are exempt only when both of the following are true:

  • Delivery charges are separable from the sales transaction, and
  • Delivery charges are stated separately on a written invoice or contract.

In the case at hand, the restaurant invoices do separately state the delivery charges. However, the charge is in essence not separable from the sales transaction because the customers are not informed that there is a charge for delivery when they order the food. To quote the General Interest Letter:

“Thus, it appears that the customer does not make the decision to purchase the delivery service. Thus, stating the delivery fee only on the invoice the customer receives after the transaction is complete does not satisfy the ‘separately stated’ requirement….

Stating charges on the invoice does not, by itself, make the delivery charge separable from the sales transaction. The charges must be actually ‘separable’ from the transaction for the sales tax exemption to apply. ”

Determinism prevails, as customers are given no actual choice (free will). The delivery charges are therefore subject to Colorado sales tax. (Read about a similar situation in Florida.)

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photo credit: Delivery, Kanto Japan 1960's via photopin (license)

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.