Colorado: Fee or tax?

Remote retail sales just got rockier in Colorado, which has begun imposing a 27-cent fee on every retail delivery made by motor vehicle to a destination in the state.

The fee will apply when at least one item is subject to sales or use tax and the delivery is mailed, shipped or delivered by motor vehicle. Wholesale sales or sales of exempt goods are not subject to the fee.

The state says retailers, online marketplaces and services must charge the shipping fee – which combines six different smaller fees – on each order total if the order will be delivered to a Colorado address using a motor vehicle, and it includes at least one good that’s subject to the state sales or use tax.

The fee must only be charged once per order, even if the order will be split into multiple deliveries, according to the Colorado Department of Revenue’s guide. The fee must be separately stated on the customer’s invoice as “retail delivery fees.”

The seller or marketplace facilitator that collects the fee from the consumer is responsible for remitting that to the state. Payment is due at the same time the seller’s sales tax return is due. The seller is responsible for collecting and remitting the fee even when shipping is made by a third party.

Popular it’s not

The groundbreaking law, which kicked in July 1, is shaping up to be a simple thing people cannot understand.

Part of a widespread package of fees designed to funnel part of the money to roads and transportation, SB21-260 ran into a lawsuit soon after passing and has reportedly forced many local merchants to just absorb the cost and caused confusion and scrambling among online retailers shipping into the state.

One local small business owner told a news outlet that it’s costing her more than $100,000 to implement new software and systems around the fee for her business.

“Basically what I have to do is I have to go to the delivery fee and minus 27 cents, so I’m actually losing the 27 cents, and then I charge them whatever the delivery fee is and then I go on and add the 27 cents fee,” another local merchant told a news outlet.

A right-wing coalition charged in a lawsuit earlier this year that instituting such a “fee” should have been put to voters, which it wasn’t.

“While termed a fee, it functions as a tax,” adds the Tax Foundation.

Will the fee stand? It seems likely that in a state already featuring dozens of home rules for sales tax that many critics will say that the state didn’t think the fee through before slapping it on retailers.

Stay tuned.

Contact us to find out if your business could be impacted by  Colorado's changing sales tax laws when it comes to shipping fees and to help alleviate your burden of sales tax compliance.