Retail Delivery Fee: What You Need to Know

Retail Delivery Fee 101:

A retail delivery fee (RDF) is a charge that is added to the cost of goods when they are delivered to a customer’s home or business. The charge is collected from the customer and some states are enforcing a collection of RDFs in an effort to finance their infrastructure projects. It is important to keep in mind that this is not a tax, but a state-imposed fee.

Colorado takes the lead:

In July 2022, Colorado became the first state to implement a statewide retail delivery fee (CRDF) in an effort to help fund the state’s transportation infrastructure – a 27-cent fee that applies to all deliveries made by motor vehicle, regardless of the distance traveled. It also applies to all deliveries that contain at least one item of tangible personal property subject to state sales or use tax. The fee increases to 28 cents on July 1^st, 2023.

Both companies and customers have expressed a few reservations toward covering the retail delivery cost. Some companies claim that the charge will make conducting business more expensive and is an unneeded burden. Furthermore, customers have also complained about the cost.

In May 2023, Colorado Governor Jared Polis signed a bill that makes some changes to the retail delivery fee. The bill allows businesses to elect to pay the fee on behalf of their customers without separately stating the fee amount on a receipt or invoice. The bill also increases the small-seller threshold to $500,000, meaning that new businesses and businesses with less than $500,000 in annual sales are exempt from the fee.

Although the Colorado retail delivery fee (CRDF) is a relatively new policy, it has already made an impact on the state’s economy. It has generated millions of dollars in revenue that have been used to improve the transportation infrastructure.

After the CRDF, Minnesota takes the baton:

Minnesota is the second state in the country to implement a statewide retail delivery fee. The fee was signed into law in May 2023 and will take effect on July 1, 2024. The fee is 50 cents per delivery and applies to all deliveries of tangible personal property made by motor vehicle to a location in Minnesota that contains at least one item subject to state sales or use tax. Following Colorado’s strategy, the fee is intended to help fund Minnesota’s transportation infrastructure.

The retailer collects the fee and remits it to the Minnesota Department of Revenue on a monthly basis. The fee is indexed to inflation, so it will increase annually.

Minnesota was more specific (and generous) in listing retail deliveries that are exempted from the RDF:

Additionally, the legislation also accounts for a small business exception where the RDF does not apply on retails that made less than $1M in the previous calendar year, and any marketplace provider that facilitates the sale of a retailer that generated less than $100,000 in retail sales in the previous calendar year. You must report the retail delivery fee on a return prescribed by the commissioner and remit the RDF with the return to the state of Minnesota.

Are out-of-state sellers subject to the retail delivery fee?

Out-of-state retailers in Colorado must collect the RDF on deliveries from outside CO or by a third party. Similarly in Minnesota, out-of-state retailers & businesses maintaining a place of business within the state have to collect MN’s retail delivery fee, depending on that they have an obligation to collect and remit Minnesota’s sales tax.

What’s the future of RDFs?

While the story continues with New York State and City currently working on legislation to impose a 25-cent and $3 surcharge, respectively, on every delivery transaction made, it is apparent that RDFs are gradually becoming an addition to the line of requirements retailers have to watch out for and can be an added compliance challenge to affected businesses.

The continuous changes and amendments regarding RDFs may seem complex, Leyton can help your business assess if it is subject to collection and remittance of retail delivery fees. Consult with one of our tax advisors to make sure your business stays compliant.