Colorado has announced that the new Retail Delivery Fee (RDF) will come into effect July 1, 2022. This adds yet another layer of compliance complexity for retailers and facilitators that transmit tangible property to the state of Colorado. This affects not only in-state retailers but out-of-state retailers as well. Here are some questions you may want to ask yourself to avoid liability.
What is the Retail Delivery Fee?
The Retail Delivery Fee is not a tax itself; it’s simply a fee. Although, there’s not much simplicity about it.
This fee is imposed on deliveries that are subject to Colorado’s state sales and use tax. It is not based on the value of the transaction but based upon how it's delivered and whether the items included in the order are subject to the tax. Simply put, taxability is taken into account to determine whether the fee should be charged or not.
The $0.27 fee, which will be calibrated annually for inflation, applies to retailers selling taxable tangible goods for delivery by motor vehicle to consumers in Colorado. This fee is applied to deliveries that originate in Colorado and also deliveries originating from other states to a purchaser in Colorado.
Considering the abundance of delivery trucks that fill the streets, this could be quite lucrative for the state. So that begs the question: where is this money going? This fee covers certain elements in the state. It will contribute to:
- Community Access
- Clean Fleet
- Clean Transit
- General Retail
- Bridge and Tunnel
- Air Pollution Mitigation
Ultimately, the state is gathering revenue to help manage these elements of life in the state of Colorado.
Who Does This Affect?
The impact of this fee will affect retailers licensed to make sales in Colorado; anyone who sells taxable items that will be delivered by a motor vehicle in Colorado. Some examples are:
- Online stores that ship orders
- Restaurants that deliver
- U.S mail
- Flower Delivery
- Online Stores that Ship Orders
Essentially, any sales that require delivery. Whether it's furniture, appliances, electronics, etc.
What are the Registration and Filing Requirements?
This is where things can get tricky. Retailers, in-state and out-of-state, with an active Colorado sales tax account, a retailer license and sales tax liability reported after January 1, 2021 will be automatically registered for the new Retail Delivery Fee account by July 1, 2022. Retailers cannot opt-out of the automatic registration.
The state does this to allow you to file the form so you can report the $0.27 on every transaction. The retailers must then individually state the Retail Delivery Fee on all consumer receipts and invoices. If not, it will come out of your own pocket.
This may be a lot to take in and if you're feeling overwhelmed, you're not alone. One of the frequently asked questions posted on the Colorado website is: ”What if I’m not ready to collect this fee by the deadline?” What then?
To answer this question they state on their website:
“We understand that some retailers may have difficulty implementing this new retail delivery fee program by July 1. For those retailers who are making a good-faith effort to comply with these new requirements, we plan to be generous in granting requests to waive late filing and payment penalties and interest…” (source: tax.colorado.gov)
Notice, they stated they plan to be generous in waiving late payment penalties but they are not going to waive the Retail Delivery Fee itself. You are still liable for any uncollected fees. If you are utilizing a marketplace facilitator platform, you may not have to collect the fee since it will most likely be the responsibility of the facilitator, but you may still be required to file a zero return. For everyone else, you need to have a way to add this fee to your invoices and be able to report them on the return going forward. Which leads us to the next question.
What Does This Have To Do With Sales Tax?
To cut to the chase, if you're automatically registered for a fee that you're responsible to collect and remit, then you're also responsible to file a return whether you’ve collected the fee or not. So effective July 1, 2022, you may have a responsibility to file a return that you may unknowingly neglect to file if you're unaware that this license has been put into place on your behalf.
So, to reiterate, if you match the conditions - an active Colorado sales tax account, a retailer license and sales tax liability - then you have the license and a responsibility to collect this fee and file the return associated with this fee. If you don't, even if you are unaware, you could be hit with a late penalty or non filing penalty, and the fee coming out of your own pocket.
The frequency of filing this return and these fees will match your filing frequency for sales tax purposes. Hence, it will be monthly unless your filing frequency is quarterly, semi-annually or annually.
Are There Any Exceptions?
The Retail Delivery Fee does not apply when otherwise taxable goods are delivered to a purchaser exempt from the state sales tax, like charitable organizations. Additionally, the fee does not apply to deliveries of nontaxable goods from wholesale retailers as long as the delivery is exempt from state sales tax.
Otherwise, you are liable for any uncollected fees. That is why it is pertinent to determine if you are responsible for collecting the Retail Delivery Fee and then begin collecting it by July 1st to avoid liability. You will have the responsibility to indicate how many deliveries were made subject to this fee, and if the fee has not been collected, it will come out of your own pocket.
What Do I Need To Do?
We recognize that this is a lot to take in. The complexities of the state tax laws in Colorado are enough to make even the professionals dizzy.
Here are some action items that will help you navigate this new fee:
Action item 1: Start charging the purchaser on delivered items, the charge must be labeled separately on the invoice or receipt as “Retail Delivery Fee.”
Action item 2: File the Retail Delivery Fee return and remit fees to the CDOR. There is more information on how to do that on the state's website.
Action item 3: Contact your POS service providers to ensure the fee is implemented correctly.
Action item 4: Through our What’s Next Call we can discuss with you any further questions you may have about registration and filing or payments to the state of Colorado regarding the Retail Delivery Fee.
There is confidence in collaboration, let us help you navigate even the trickiest situations and mitigate any liability. We are here to help you find peace of mind. We look forward to hearing from you.