Colorado’s Retail Delivery Fee Creates Hidden Challenges

On July 1, 2022, Colorado rolled out its new Retail Delivery Fee to help offset the rising cost of highway and bridge maintenance throughout the state. The tax amounts to a $.27 fee on each sale of taxable tangible goods delivered to in-state residents by way of motor vehicle. The tax is imposed on the delivery of goods by both in-state and out-of-state sellers. Although the tax is ultimately imposed on the consumer, retailers delivering the goods bear the responsibility of collecting and remitting the new tax to the state.

To ease the administrative burden of compliance, the Colorado Department of Revenue automatically created new and separate accounts for reporting and remitting the new Retail Delivery Fee for all businesses with an existing sales tax account, retailer license and/or sales tax liability reported after January 1, 2021 on file with the state. Unfortunately, the ease of the additional administrative burden ends there.

The Retail Delivery Fee was implemented before the Colorado Department of Revenue released the draft final rule, prompting concern by wholesalers and retailers both large and small. While the department has noted that the fee is imposed on the purchaser of the goods, the additional cost of compliance has received little consideration, leaving businesses responsible for collecting and remitting the tax.

Complying with the Retail Delivery Fee is proving to be a challenge for business owners, retailers and marketplace providers alike. For example, the fee is imposed only on the sale of “taxable” goods. The sale of “nontaxable” goods is not subject to the tax. However, if a single sale has both taxable and nontaxable goods, then the tax applies to the full delivery. Wholesale goods are not typically subject to tax but if, for example, a small retailer has wholesale items intended for resale delivered together with taxable items for their business’ own use or consumption, the Retail Delivery Fee would now apply.

The Colorado Department of Revenue also requires the Retail Delivery Fee to be clearly identified and listed separately from other charges on the invoice or receipt. This obliges retailers to revise invoicing systems to both clearly display and capture the new tax.

The corresponding Retail Delivery Fee Return (Form DR 1796) appears deceptively simple, but requires taxpayers to report and remit more than just the amount collected. The taxpayer must also report the number of deliveries that occurred within the reporting period. This impacts retailers who sell both taxable and nontaxable items in that they must actively track the number of nontaxable deliveries versus taxable deliveries to ensure that they are not unintentionally overreporting.

Another important consideration for Colorado retailers, since the Colorado Department of Revenue automatically created accounts for all taxpayers with existing accounts or liabilities: all affected taxpayers must file a return even if all their deliveries within the reporting period are nontaxable or they will be subject to noncompliance penalties.

Maintaining compliance with existing state and local tax laws is a challenge for any business. Learning to navigate the nuances of newly imposed taxes is even more so. From taxability reviews and ongoing tax compliance to assistance with liability calculations and strategic analysis to minimize the imposition of the tax, we can help you so that you can stay focused on what matters most…your business! Contact us for information or assistance.

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