On May 4, 2023, Colorado Governor Jared Polis signed Senate Bill 143 into law, approving an exemption from the 27-cent fee for "existing and new small businesses" with annual retail sales of $500,000 or less. Additionally, companies will now be allowed to pay the fee themselves or pass it on to their customers as a “pragmatic solution” to backlash received from the fee.
After the delivery fee was initially implemented, Colorado swiftly received backlash for the decision – not only because of the fee itself, which was set to increase to $0.28 effective July 2023, but also because of the additional tax compliance involved with collecting and remitting the fee. Despite being imposed on items subject to sales and use tax, the retail delivery fee requires a separate tax account and a separate return.
“The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, or safety.”
THE EXEMPTION
Presently, Colorado legislators are attempting to address these concerns with an exemption to the retail delivery fee. On March 20, 2023, the Colorado House of Representatives (House) approved SB 23-143, which provides an exemption for a “qualified business”, as well as flexibility for retailers who elect to pay the retail delivery fee on behalf of the purchaser.
Colorado statute defines a “qualified business” as one that has $500,000 or less of retail sales in the previous calendar year. The purpose of the exemption is to impose the retail delivery fee only on retailers that are “large enough to absorb these administrative costs without significant economic harm.”
THE BURDEN
In stating this, the legislators recognize that “there are administrative costs for a retailer when the state imposes a fee on retail deliveries, and the benefits from the fee revenue need to be balanced with the potential economic impacts on the retailers.”
Further, the bill as passed by the House would allow for retailers who choose to pay the retail delivery fee themselves to receive some added benefits. For example, such retailers would not be required to add the retail delivery fee to the price of the retail delivery, separately itemize the fee or collect it from the purchaser. Additionally, the Department of Revenue would be required to waive any processing costs for electronic payments of ACH debit if the charges would exceed the amount of the retail delivery fee revenue that is being remitted.
THE TAKEAWAY
This exemption would greatly reduce the impact of the retail delivery fee on retailers selling into Colorado. However, the risk of potential compliance issues remains, as retailers would also be responsible for analyzing their yearly sales in relation to crossing the $500,000 threshold for the retail delivery fee.
It is important to note that the retail delivery fee requires a different analysis than an analysis based on the state’s economic nexus laws, which require out-of-state retailers to register, collect, and remit sales tax once they have exceeded $100,000 in gross sales in the previous or current calendar year. As such, retailers should continue to anticipate possible compliance issues in Colorado related to the retail delivery fee.