Minnesota joins Colorado in passing a retail delivery fee, and the fees are climbing.

By Meredith Smith and Tram Le

The Colorado Senate bill 23-143 modified the state’s retail delivery fee (RDF). There’s now a new business exclusion for small businesses with up to $500,000 in revenue. So, the 27-cent retail delivery fee in Colorado doesn’t apply until you exceed that threshold.

Another change is that the fee no longer needs to be charged to customers on an invoice. The department decided not to enforce that requirement. So, if a taxpayer wants to absorb the fee and not charge their customers, you can do so. This is good news for some smaller delivery customers who make only a few deliveries to the state per year and find it costly to implement a system for charging the fee.

Lastly, a friendly reminder that the fee will increase from 27 cents to 28 cents starting July 1. Companies that handle it manually will need to update their systems accordingly, while platforms like Vertex, Avalara, and Shopify will likely update their systems automatically.

Minnesota Follow Suit

But Colorado’s move seems like the snowball rolling down the hill and picking up speed. Minnesota has enacted a transportation bill that includes a retail delivery fee. The fee in Minnesota is set at 50 cents, and there is a small business exclusion for revenues up to $1 million. It applies to in-state delivery transactions, but the exact mechanics are yet to be determined as the Department of Revenue has not yet provided guidance.

There are a few exceptions outlined in the bill, including a small seller exception and an exemption for non-taxable items. Similar to Colorado’s new version, businesses can choose to absorb the fee or pass it on to customers. If passed on, the fee must be listed separately on the invoice with specific language to identify it as a transportation or infrastructure fee. One interesting note in the bill is that if the fee is charged on the initial sale and the item is later returned, the fee is not refundable.

We’ll have to wait and see how this plays out once the Department of Revenue provides further guidance. Minnesota is now on board with these retail delivery fees, and it’s important to note that this is a separate mechanism from sales tax. It’s a standalone fee that appears on the invoice alongside sales tax.

The Takeaway

As the state trend continues, we might see adjustments to the small business exemptions. $500,000 doesn’t provide much relief, and even $1 million might still be challenging for small businesses with slim margins. States implementing these fees should gather more data and consider the infrastructure required for compliance. It’s important to evaluate whether this makes sense for businesses and state governments from a policy perspective. There will likely be further debate as this trend continues.

The policy question is a big one. We’ve seen mechanical challenges in complying with the retail delivery fees in Colorado. Implementing systems and adjusting shopping cart platforms for a simple line item on the invoice requires significant effort. It’s surprising how much work goes into such a seemingly small fee.

Ideally, states should focus on administering existing taxes more effectively and efficiently, rather than introducing new mechanisms. However, we’re currently dealing with this new and shiny penny, and there’s still a lot to figure out. We’ll keep our eyes on these developments and provide updates as they come in. It’s important for businesses to stay informed and be prepared to adapt to these changes. So, thank you all for joining us today, and remember to follow SALTovation for more updates. Thanks, everyone!

 

More Tax News