Minnesota introduces Colorado-style retail delivery fee

Update, May 30, 2023: Minnesota has indeed enacted a retail delivery fee, but not the fee described below. See HF 2887 for more details.

Colorado caused a kerfuffle in 2022 when it imposed a retail delivery fee on taxable tangible goods delivered by motor vehicle to consumers in the state. The Centennial State also unleashed a flurry of speculation about whether other states would follow its lead. If there was ever any doubt, it evaporated when Minnesota introduced a Colorado-style retail delivery fee of its own in January 2023.

There are at least two reasons why a fee on motor vehicle deliveries would be appealing to states: the money and the environment.

The money. Colorado expects its retail delivery fee to bring in $16.8 million and $18.8 million during its first two years. With motor fuel tax revenue on the decline as more drivers switch to electric and hybrid vehicles, retail delivery fees could become an essential source of funding for road and transportation projects.

The Minnesota Department of Revenue expects its proposed retail delivery to generate $46.4 million during the first fiscal year, and more than $127.7 million by fiscal year 2027.

The environment. The Colorado retail delivery fee statute notes that according to the world economic forum, there will likely be over 30% more delivery vehicles on roads delivering 78% more packages by 2030. In addition to increasing traffic congestion and wear and tear on highways, roads, and streets, this will “increase motor-vehicle-related emissions of air pollutants, including ozone precursors, particulate matter pollutants, other hazardous air pollutants, and greenhouse gases, that contribute to adverse environmental effects, including but not limited to climate change, and adverse human health effects.”

Colorado’s law continues, “It is therefore necessary and appropriate to impose a retail delivery fee.”

The Minnesota bill (HF 580) doesn’t mention the environment or roads; it simply proposes the fee.

What you need to know about Minnesota’s retail delivery fee

As introduced, Minnesota’s proposed retail delivery fee would function much like its predecessor in Colorado.

The Minnesota retail delivery fee would apply to a retail sale of tangible personal property by a retailer (including a marketplace provider or facilitator) for delivery by a motor vehicle to the purchaser at a location in Minnesota, “in which the sale contains at least one item of tangible personal property that is subject to taxation.”

Except for when it doesn’t.

Which transactions are subject to the retail delivery fee?

Minnesota’s making an interesting exception to the bit about the fee applying to deliveries of taxable property. Its retail delivery fee would also apply to retail sales of clothing, which for the most part are exempt from Minnesota sales tax.

However, purchasers who are exempt from Minnesota sales tax under Chapter 297A would also be exempt from the retail delivery fee.

How does the retail delivery fee apply to split shipments?

According to the measure, each retail sale is a single retail delivery regardless of the number of shipments necessary to deliver the items of tangible personal property purchased. In other words, one fee would apply to split shipments. This is similar to the Colorado retail fee.

What happens to the fee when an item is returned?

With respect to refunds, the fee would be treated like a sales tax. Since retailers must refund the purchase price and the sales tax paid on refunded items, they would also be required to refund the retail delivery fee.

For more details on how Minnesota sales tax applies to reduced-price sales, see the Minnesota Department of Revenue fact sheet on coupons, discounts, rewards, rebates, and other forms of payment.

When does the Minnesota retail delivery fee take effect?

If adopted as enacted, the Minnesota retail delivery fee would take effect January 1, 2024. This should give retailers ample time to prepare to collect and remit the fee — something retailers lacked in Colorado.

Businesses were given very little notice about the Colorado retail delivery fee. Though the fee was established by the enactment of Senate Bill 21-260 on June 17, 2021, the Colorado Department of Revenue didn’t issue guidance for it until a stakeholder workgroup meeting on June 23, 2022. Retailers had to scramble to collect the Colorado fee starting July 1, 2022, and were still learning new information about the fee into the fall.

How much is the Minnesota retail delivery fee?

The rate for the Minnesota retail delivery fee would be as follows:

40 cents from January 1, 2024, through June 30, 2025
45 cents from July 1, 2025 through June 30, 2027
50 cents from July 1, 2027, forward

This is quite a bit higher than the Colorado counterpart, which is 27 cents. On the other hand,it’s more of a known entity: Although the Colorado fee is also set to increase over time, future rates have yet to be announced.

Is Minnesota’s retail delivery fee subject to sales tax?

The bill specifies that the retail delivery fee is not subject to Minnesota sales tax: “The retail delivery fee must not be included in the sales price for purposes of calculating tax owed.”

What a relief. One of the most agonizing aspects of the Colorado retail delivery fee is that it can be subject to local sales tax. So, although the fee is exempt from the Colorado state sales tax, it’s subject to local sales tax in approximately 30 home-rule jurisdictions.

Do retailers have to collect the retail delivery fee from customers?

Yes. According to the bill, the retail delivery fee “must be charged in addition to any other delivery fee.” It must also be separately stated on invoices, receipts, or other bills of sale.

“The thing that gets lost in the policy conversation is how governments would collect taxes were it not for businesses,” observes Scott Peterson, VP of Government Relations at Avalara. “About the only time a person pays a tax directly to their government is when they renew their license plates. Imagine what that process would look like if that’s how governments collected every other tax.”

Colorado may change or eliminate its retail delivery fee

As the Minnesota Legislature works to adopt a new retail delivery fee, the Colorado General Assembly is considering two measures that would alter or eliminate its retail delivery fee (RDF).

Colorado SB23-143 would establish an exemption from the RDF for businesses with $500,000 or less of retail sales in the prior year.

Colorado HB23-1166 would eliminate the RDF effective July 1, 2023.

Whatever happens with retail delivery fees in Colorado or Minnesota, we’ll let you know at the Avalara Tax Desk.

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.

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