Will Washington be the next state to implement a retail delivery fee?

The name says it all: A retail delivery fee is a fee imposed on items purchased at retail for delivery in the state by motor vehicle. A retail delivery fee is not a tax but functions much like one. In Colorado and Minnesota, the only two states with a retail delivery fee at this time, the retailer or marketplace facilitator responsible for collecting and remitting sales tax is also responsible for the delivery fee.

For the money, of course. Fuel tax revenue in Washington is declining with the rise in electric, hybrid, and other fuel-efficient vehicles. As the motor vehicle fuel tax is no longer a sustainable or reliable source of revenue, state and local governments need an alternative source of funds for roadways and transportation infrastructure.

Meanwhile, online sales are on the rise: They accounted for 14% of total retail sales in 2019 and a whopping 20% of total retail sales in the state in 2023, according to a report published by the Washington State Legislature Joint Transportation Committee (JTC) in June 2024. More online sales mean more deliveries, more wear and tear on the roads, and more money for maintenance and repairs that are more expensive than ever.

A fee on retail deliveries would “generate revenue essential for the maintenance, repair, and improvement of streets, bridges, and other transportation infrastructure,” per the report. It could help ensure “fair and equitable distribution of the financial burden among retailers, consumers, and delivery services.”

Nothing has been decided, but the Joint Transportation Committee used a retail delivery fee of 30 cents for the report. This is quite a bit less than Minnesota’s 50-cent fee but more than Colorado’s retail delivery fee, which started at 27 cents and is now 29 cents.

The JTC considered four different possibilities:

1. No exemptions. The retail delivery fee would apply to all retailers and all taxable tangible personal property — but not to products that are sales tax exempt.
2. An exemption for certain transactions. Orders valued at $75 or less would be exempt from the retail delivery fee.
3. An exemption for certain retailers. The retail delivery fee would not apply to sales by retailers with less than $1 million in retail sales in the prior year. The report doesn’t specify whether that’s $1 million of total revenue or Washington state revenue.
4. An exemption for certain retailers and certain transactions. Retailers with less than $1 million in retail sales would be exempt from the retail delivery fee, as would orders of $75 or less.

Revenue projections vary by scenario, ranging from $45 million to $112 million for 2026, to between $59 million and $160 million for 2030. The high estimates assume no exemptions from the fee (#1 above), while the low numbers suppose Washington exempts orders under $75 and retailers with less than $1 million in annual revenue (#4).

Having a threshold for a retail delivery fee that differs from Washington’s economic nexus threshold could confuse sellers, observes Scott Peterson, VP of Government Relations at Avalara. Under the state’s economic nexus law, businesses with no physical presence in Washington must register for sales tax if they have $100,000 or more in cumulative gross annual sales in the state.

“The $1 million threshold treats similar businesses differently,” Peterson adds. “The $75 transaction threshold impacts every seller, or at least most, by requiring them to add another calculation in the checkout process.”

Administrative costs would eat between $200,000 and $540,000 annually for the first couple of years, then stabilize at about $160,000 per year. The state anticipates administrative costs will increase by 1.5% yearly starting in 2029.

The state estimates each Washington resident could make between 42 and 46 online retail orders for delivery in 2026. Assuming no exemptions and a retail delivery fee of 30 cents, the average customer would pay between $13 and $14 in retail delivery fees annually.

How would a retail delivery fee impact low-income households?

The JTC is concerned about the potential impact of a retail delivery fee on low-income households and on consumers with accessibility issues or physical disabilities. To that end, it gathered data from the U.S. Census Bureau, the U.S. Department of Transportation Equitable Transportation Community Explorer, and the big data platform Replica.

The data, displayed in several nifty charts in the report, shows some interesting consumer trends. However, further study is needed for the committee to determine how a retail delivery fee would affect low-income individuals and other communities.

A fee on retail deliveries in Washington would impact businesses even more than consumers, as businesses would be responsible for collecting and remitting the fee. And indeed, when the JTC met with representatives from the Association of Washington Businesses (AWB) to solicit feedback, the committee heard “varying levels of opposition to the retail delivery fee.”

The AWB shared the following feedback and concerns:

• The business community opposes generating revenue through a retail delivery fee; “The burden of addressing this issue should not fall solely upon the business community.”
• Any fee should not increase burdens for demographics that rely on prepared food and lack the ability, time, or expertise to cook.
• There are potential environmental impacts if consumers change their behavior to avoid the fee.
• There could be operational impacts on businesses, particularly regarding tax collection.
• There would likely be a burden placed on businesses to enforce compliance with a delivery fee; many businesses found it challenging to enforce the bag ban.
• A retail delivery fee could impact existing local regulations; for example, Seattle’s PayUp Program requires delivery companies to compensate independent contractors at least the city’s minimum wage, potentially raising delivery expenses.

In separate meetings with the JTC, representatives from Colorado and Minnesota shared that small businesses operating with narrow profit margins are “sensitive to changes in customer behavior that may accompany the additional costs associated with a delivery fee.”

Washington wants to craft “effective and equitable policies that serve the interests of all parties.”

For this reason, the Joint Transportation Committee plans to further examine its options, “alongside stakeholder input and careful analysis of potential impacts.”

It will likely keep the following suggestions from Colorado and Minnesota top of mind:

• Engage relevant stakeholders (retail businesses, delivery companies, marginalized communities, and local governments)
• Allow businesses to choose how to collect the fee
• Establish an overall revenue target
• Identify rationales for exemptions
• Exempt small businesses 
• Establish good definitions in the statute or rules

Senator Marko Liias, who chairs the JTC, reportedly expects “some version of the fee” to be discussed during the next legislative session — and for there to be “strong arguments” for and against it. They’re already starting to emerge. When the report was presented to the committee, Representative Jim Walsh reportedly said he was concerned the fee would be regressive.

If Washington does implement a retail delivery fee, it will likely take effect January 1, 2026.

Retail delivery fees have been discussed in Nevada and Ohio, but neither state has gone so far as to propose a fee legislatively. New York took a step closer, proposing retail delivery fees for New York City and New York state in 2023. Neither bill was enacted.

If any other states move toward a retail delivery fee, the Avalara Tax Desk will let you know.