New retail delivery fee in Minnesota adds yet another compliance mechanism for taxpayers to deal with, proving just how little states have learned from the earlier Colorado experience.
The Minnesota Legislature wrapped up a historic legislative session, passing several significant bills. One particular provision of the transportation package that we’d like to call out is the 0.50c retail delivery fee (RDF). The reasoning behind the RDF is that gas tax revenue in down, accordingly revenue for infrastructure is down as well, so the RDF could offset the gas tax related losses. Imposition of an RDF keeps the tax burden on at-home shoppers, who instead of driving to buy goods and funding state revenue via a gas tax, will fund infrastructure via the RDF.
The RDF will be assessed on transaction sales made to Minnesota residents and will generate an estimated $100 million in revenue each year. There are some exemptions, including a small seller exemption for businesses making less than $1 million in retail sales in the previous year.
The revenue from the fee will be used to fund infrastructure projects, such as road repairs and bridge construction, which see more wear and tear on local roads and neighborhood streets with the increase in front door deliveries. (As a Minnesota resident, my vehicles sincerely thank you for your contribution to making the state’s roads better.)
This might be good public policy, but the chosen mechanics are questionable. Colorado’s recent experience pioneering a Retail Delivery Fee of 0.27c (increasing to 0.28c, effective July 1, 2023) was an administrative nightmare for stakeholders.
Minnesota’s RDF is effective July 1, 2024, Departmental guidance not yet provided (to be fair to the Department, this law was just passed). It will be yet another challenge for taxpayers, and the vendors in the e-commerce and sales tax ecosystem to adjust to yet another set of unique rules and mechanisms.
We would have much preferred the legislature to choose an existing mechanism (i.e., the sales tax) as an avenue to raise revenue for infrastructure. Doing so would have made implementation for taxpayers significantly less challenging.
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