Effective July 1, 2022, Colorado is imposing a state-level “retail delivery fee” on certain motor vehicle deliveries to a Colorado location of at least one item of tangible personal property subject to the Colorado sales tax.1 This fee must be collected and remitted by the retailer or marketplace facilitator that collects the sales or use tax on the underlying tangible personal property sold and delivered, including delivery by a third party.
Imposition of fee
In determining the scope of the retail delivery fee, the term “retail delivery” is defined as a sale of tangible personal property by a retailer for delivery by a motor vehicle owned or operated by the retailer or any other person to the purchaser at a location in Colorado, which sale includes at least one item of tangible personal property that is subject to sales tax.2 The imposition of the retail delivery fee is not based on the number of items or shipments within a sales transaction. A single order may be sent to the customer in multiple shipments, but the retail delivery fee is only charged once. The fee applies to deliveries by “motor vehicle,” with personal delivery devices excepted from that term.3
The retail delivery fee initially is set at $0.27 per sale, which amount is an aggregate of six separate fees designated for a variety of environmental and transportation-related purposes, and is annually indexed for inflation starting in July 2023. The total fee must be separately listed on the invoice as one unified item called “retail delivery fees.”4
The Colorado Department of Revenue’s current draft regulation interpreting the retail delivery fee statute contemplates the added complexity of subscriptions, leases and recurring payments.5 If a purchaser places a single order, with periodic payments and one delivery, the fee will only be collected on the first payment. However, if a purchaser has an automatic subscription, with separate payments charged and the ability to cancel before shipment, it will be considered a separate retail sale with the retail delivery fee charged on each automatic, recurring order.
Exemptions and deductions
The retail delivery fee is not imposed if all tangible personal property included in the sale is exempt from sales tax; or the purchaser is otherwise exempt from state sales tax.6 In addition, the retail delivery fee is not imposed if the underlying sale of property is made on a wholesale rather than retail basis.7 However, if the sale delivered by motor vehicle includes both items for resale and tangible personal property subject to state sales tax, the transaction is subject to the retail delivery fee. Also, a refund or credit of the retail delivery fee already paid and collected is not available when the underlying purchased item is returned to the retailer for a full refund of the purchase price and sales tax.8
Registration, due dates and liability for fee
The Department has automatically registered retailers for the retail delivery fee who already have an active sales tax account. Otherwise, an account may be created via the Colorado Revenue Online system. There is no separate license or fee imposed on registration for this fee. The retail delivery fee is reported and paid on a new return, DR 1786, and is due at the same filing frequency as the taxpayer’s existing sales tax returns. Importantly, a retailer who fails to collect the required retail delivery fee from its customer will be liable for the full amount of the fee due. Further, a purchaser cannot be held separately liable to the Department for a seller’s failure to charge the fee.
Commentary
While Colorado enacted the retail delivery fee into law in 2021 with an effective date of July 1, 2022, the Department only recently has issued guidance on implementing the fee through a draft regulation and guidance on its website. Thus, retailers and marketplace facilitators have very little time to establish formal procedures to collect the new fee. During a stakeholder workgroup meeting held by the Department on June 23, 2022, the Department acknowledged implementation challenges raised by attendees. While noting that it would be lenient with penalties and interest for a good-faith compliance effort, at least in the short term, the Department also warned that retailers may need to absorb the fee out-of-pocket instead of adding it to the customer’s invoice while the fee is being implemented into their billing systems and tax engines.
Other clarifications noted during the stakeholder workgroup meeting which may be later incorporated into the final regulation or updated guidance on the Department’s website include the treatment of product exchanges, in-store pick-ups, and transactions with an incidental sale of tangible personal property related to the sale of services.
The Department also is evaluating whether or not the United States Postal Service (USPS) is “a person” and if deliveries of goods shipped by USPS would be exempt from the retail delivery fee. Information on the delivery provider is not generally a differentiating data element collected by the seller within the transactional billing data, and this exclusion would likely create further difficulties and delays with implementation and automation.
Lastly, while the definition of “purchase price” was amended at the state level to specifically exclude the retail delivery fee,9 questions still remain on the taxability at the local level for home-rule jurisdictions as some may deem it to be a “freight charge” and subject to sales tax.
1 Retail Delivery Fee, Colorado Department of Revenue, June 2022; The retail delivery fee was enacted by S.B. 21-260, Laws 2021, adding COLO. REV. STAT. § 43-4-218.
2 Colo. Rev. Stat. § 43-4-218(2)(e).
3 A “personal delivery device” is an autonomously operated robot that is: (i) designed and manufactured for the purpose of transporting tangible personal property primarily on sidewalks; (ii) weighs no more than 550 pounds, excluding the items being transported; and (iii) operates at speeds of less than 10 miles per hour on sidewalks. Colo. Rev. Stat. § 43-4-218(2)(d). The Department notes that the retailer must consider all modes of transportation used to make the delivery from acceptance of the order to the actual delivery to the purchaser.
4 Colo. Rev. Stat. § 43-4-218(6)(b).
5 1 Colo. Code Regs. § 43-4-218 (draft regulation).
6 Colo. Rev. Stat. § 43-4-218(3)(c).
7 Colo. Rev. Stat. § 39-26-102(19), (20).
8 Retail Delivery Fee, Colorado Department of Revenue, June 2022.
9 Colo. Rev. Stat. § 39-26-102(7)(a).
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