During the pandemic many Colorado businesses and individuals had to make adjustments to comply with government orders and prevent virus transmission. When it came to getting necessary items for day-to-day needs including food, household supplies, and more, online delivery became the preferred option. It not only eliminated the need to go to a store or restaurant but was more convenient. In fact, online delivery has become so popular that Walmart experienced an 87% growth in online business over the last two years. The rise in popularity caught the attention of the Colorado legislature which approved a new Retail Delivery Fee to be assessed on certain deliveries starting July 1, 2022. The deliveries must be made by motor vehicle and accompany at least one item of tangible personal property subject to state sales or use tax. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
2021 Sustainable Transportation Legislation Now in Effect
Last summer, the state Senate passed SB21-260, Sustainability Of the Transportation System. The bill was intended to fund a sustainable transportation system and infrastructure maintenance in Colorado. Under prior law, user fees were static, and tolls provided most of the transportation funding. The bill noted that these charges were imposed three decades ago and were not indexed for inflation.
Other than the excise tax on motor vehicle deliveries, SB21-260 also adds to the state’s gas tax, registration or use fees for owners of electric vehicles, rideshare fees, and an inflation-adjusted daily rental car fee. Over the next ten years, the bill is expected to raise $5.4 billion.
First of Its Kind
One of the more talked about provisions in SB21-260 recently enacted is the new retail delivery fee, a first of its kind in the nation. Though the legislation was signed last summer, the final rules for the retail delivery fee were only approved in May of this year.
It is a 27-cent fee attached to all motor vehicle deliveries with at least one item that’s tangible personal property and subject to state sales or use tax. The fee is indexed for inflation and will adjust each year accordingly. Deliveries from retailers like Amazon, DoorDash, UberEATS, Instacart, and many other retailers fall under the fee’s purview. Even deliveries through the USPS apply. Out-of-state retailers are also subject to pay the fee if required to remit state sales tax.
Colorado companies are responsible for reporting and paying the fee on Form DR 1786 according to the existing sales tax filing schedule, whether monthly, quarterly or annually. Otherwise, Returns are due by the 20th day of the month following the reporting period. Retailers with multiple locations still only need to file one return for all fees. The form is required for every reporting period starting July 2022, even if there aren’t any fees.
The extra cost is passed on to customers and applies whether the delivery is shipped in the mail or transported directly. Retailers must list the fee separately on receipts or invoices as a “retail delivery fee.”
Next Steps for Businesses
Those with an active sales tax account, retailer license, and those who reported any sales tax liability after January 1, 2021, have been automatically registered with a retail delivery fee account. Active out-of-state companies meeting this criterion were also added.
There’s no fee to register for an account. Some retailers may have been automatically registered even if they don’t make retail deliveries. In those cases, the Colorado Department of Revenue (DOR) will close the account automatically by February 28, 2023, unless the taxpayer opts to close it themselves first.
Other companies will need to register for a retail delivery fee account. It’s also a good idea for all who are potentially affected to log in and review account information to ensure accuracy.
Colorado has already said that it’s not prioritizing enforcement. If retailers don’t have processes in place to list the fee separately on receipts or invoices, but still pay the full fee amount with the accompanying return, the state is expected to exercise leniency. “Retailers who are temporarily paying the fees are advised to avoid statements indicating that the retail delivery fee will be assumed or absorbed or that it will not be added to the sale.”
Further, if a retailer makes a good faith effort to comply but misses a deadline or does not pay the amount due in full, the state DOR is likely to grant requests to waive late filing penalties and interest. It’s unclear how long this leniency will last, so businesses will need a plan for full compliance.
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