Colorado is among the states that are broadening the goods and services subject to tax. Effective July 1, 2022, Colorado will begin imposing a retail delivery fee for all deliveries in Colorado by motor vehicles. For the fee to apply, the tangible property sold and delivered must be subject to sales and use tax in the state. You may be asking yourself, “what is a motor vehicle?” The state defines a motor vehicle as a self-propelled vehicle that is designed primarily for travel on the public highways and roads. Therefore, nearly all forms of delivery will be subject to the fee. The fee applies whether the retailer uses their own vehicle or a third-party vehicle for the delivery.
The retail delivery fee is collected statewide and is 27 cents per sale. The fee only applies to deliveries at a location in the state no matter if the retailer is in Colorado or outside it. The charge must be separately stated on the invoice as a “retail delivery fee.” The state will review the fee annually and will adjust for inflation. Any changes to the fee will be effective July 1.
Each retail sale is considered a single transaction subject to the fee regardless of the number of shipments required to fulfill the sale. For example, an invoice for a sale of five widgets, which requires three shipments, would only be subject to a single retail delivery fee of 27 cents.
Colorado is requiring a new separate account for the retail delivery fee. If your company had an active Colorado sales tax account as of January 1, 2021, then you will automatically be registered by the state. A new license is not required and there is no registration fee. If your company does not have sales of tangible personal property for delivery in Colorado, then there is no requirement to register for the fee.
The retail delivery fee is filed on the new Colorado Form DR1786. For most retailers, the form will be filed monthly and is required even if the retailer did not have deliveries in the state in a given month. Colorado allows retailers that file quarterly, annually or with any other frequency to follow the same filing frequency for the retail delivery fee form.
It is important to note that Colorado is NOT allowing retailers to refund the retail delivery fee if an item or the entire order delivered is returned. Whether to refund the 27 cents back to the customer will be a business decision.
Digital Goods Differing Tax Treatment – State vs. Home-Rule Cities
Mid last year, Colorado added “digital goods” to the definition of tangible personal property (TPP). This legislation became effective as on July 1, 2021, and changed the definition of digital goods to include TPP that is delivered or stored by digital means. Examples include video, music and electronic books (Colorado H.B. 1312; 1 Code Colo. Regs. 39-26-102(15)). Although Colorado now taxes digital goods, taxpayers must be aware that not all home-rule cities follow the state’s tax treatment.
If you are making digital goods sales in Colorado or would like additional information on how the new delivery fee provisions affect your business, we encourage you to contact one of our Kroll sales and use tax professionals to ensure you are applying the tax treatment correctly to the numerous home-rule cities.