Colorado tax changes: State imposes retail delivery fee effective July 1
By Taylor McFadden
Effective July 1, 2022, Colorado will impose a retail delivery fee (RDF) of 27 cents on all deliveries to a destination in Colorado where an item of taxable tangible personal property is delivered and subject to state sales and use tax.
The RDF will apply to both in-state and out-of-state sellers with nexus in the state. While the fiscal impact of the fee imposition projects to be low for any single retailer, the state is adding additional administrative actions required by taxpayers in an already complex sales and use tax system in the state.
What retailers are impacted?
All retailers that make delivery either by company vehicle or third party are subject to the RDF so long as they are delivering at least a single taxable item. In the event a seller is only delivering non-taxable goods (e.g., wholesale sales, grocery food sales), the fee will not apply. However, if the delivery includes both taxable and non-taxable goods, the delivery will be subject to the RDF.
Additionally, for deliveries that may require multiple shipments, only a single remittal of the delivery fee will apply. The fee is imposed on the sale requiring delivery, not the number of deliveries made.
If a retailer is making sales through a marketplace facilitator, the obligation for filing and remitting the RDF will fall on the entity responsible for collecting and remitting the sales and use tax. Likewise, the requirement for reporting and remitting the RDF for food deliveries fulfilled by providers such as Grub Hub or UberEATS will fall on the party that is responsible for collecting and remitting sales tax on the transaction.
The filing frequency and due date for the RDF will be consistent with the existing sales and use tax account for a taxpayer as will the filing due dates. Late filings and payments for the RDF will carry penalty and interest akin to those imposed on delinquent filings for sales and use tax returns.
Next steps and other considerations
As a courtesy, the Colorado Department of Revenue will be automatically registering applicable retailers with an RDF account. The state defines applicable retailers as any business making taxable sales in the state as of January 1, 2021, that still have an active sales and use tax account. The state expects all registrations to be completed ahead of the July 1 effective date, and the newly added account will appear in the existing Colorado revenue online filing portal for each respective taxpayer.
It is important to note that the delivery fee can and should be passed through to the purchaser and must be itemized as a single line item on the invoice titled “retail delivery fees.” In order to mitigate the financial burden, taxpayers should take the next month to prepare for the change and ensure they are appropriately charging and collecting the fee when applicable.
For taxpayers using the SUTS filing system, the state has confirmed in a bulletin that there will be an option to add your RDF account if applicable. If your business makes deliveries but was not automatically registered by the department, the state has also published instruction towards how to add the account manually if needed.
Prospectively, taxpayers adding a location or registering for an additional sales and use tax account will want to make note of the new question on the registration form targeting the RDF. Answering appropriately will add the RDF account if needed upon registration and allow for timely compliance from the initial filing period.
Taxpayers doing business in the state of Colorado should also be on the lookout for an update to the destination sourcing rules that will be effective October 1, 2022. Governor Polis previously signed a bill allowing for an exception of the destination sourcing for smaller businesses. As of the effective date of October 1, 2022, all businesses regardless of size must transition to destination sourcing.
How Wipfli can help
Our tax professionals can answer any questions you may have regarding the fee or assist with next steps. If you have any questions or would like some assistance from Wipfli, please reach out to your Wipfli representative or one of Wipfli’s state and local tax specialists.
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