Retailers Beware! Sales Tax Tricks, Treats, and Traps

Just because October is the month of all things spooky doesn’t mean retailers should be haunted by sales tax. From delivery fees to inventory withdrawals and the shifting definitions of what is and isn’t exempt, keeping up with all these changes can be scary. 

However, the Sales Tax Institute is here to alleviate your fears. In this article, we’ll walk through some of the most impactful changes of 2025 that every retailer should know. Whether you’re a seasoned tax professional or a retail operator trying to make sense of new obligations, understanding these updates is essential to avoiding costly mistakes and staying compliant. Keep in mind that under sales tax laws, if you sell anything you are considered a retailer! Retailers aren’t just traditional consumer products stores but can include B2B sellers as well as sellers of intangibles and even services. 

Delivery Fees, or Delivery Fears?

Colorado conjured the concept of a Retail Delivery Fee (RDF) in 2022, setting a precedent that other states continue to watch. Every year the Colorado Department of Revenue reviews RDFs to determine what changes may need to be made. This year, the rate was decreased to $0.28, which will hold until the next review in June 2026.  

Concerned about fees? Don’t be, here’s a breakdown of the important details related to the state’s RDF: 

• You are not subject to the RDF as a seller if you have less than $500,000 in Colorado retail sales of tangible personal property delivered via a motor vehicle or have no physical presence in the state and under $100,000 in sales. 

• If you’re above the threshold you are subject to the fee. 

• You can choose to absorb the cost instead of listing it separately on invoices and collecting it from the customer. 

• Any invoice that includes at least one taxable item delivered in a motor vehicle triggers the RDF. 

Minnesota is the only other state with a Retail Delivery Fee.  It has a similar $500,000 threshold and allows the retailer to absorb the fee rather than invoicing it as a separate line to the customer.  However, the rate is much higher at $0.50. 

Other states have been brewing up their own fee requirements. Washington’s reusable bag fee aims to reduce single-use plastics and promote sustainability. Retailers must charge 8 cents per bag through 2025, with plastic bag fees increasing to 12 cents in 2026. These fees must be itemized and are subject to business and occupation and retail sales tax, though they are not remitted to the state. Customers using assistance programs such as WIC, SNAP, TAN, and FAP are exempt, as are food banks and similar organizations. With new bag thickness rules also taking effect, retailers should begin preparing now to ensure compliance. 

Fee missteps can lead to more than just accounting headaches, as evidenced by Rogolino et al. v. Walmart Inc. The case against retailer Walmart alleged that the company improperly charged sales tax on delivery fees when customers had the option for free in-store pickup. A judge ruled that Walmart’s website provided sufficient notice of its terms, including a binding arbitration clause, so the case was moved to arbitration. The implications of this result highlight how even small errors in handling fees can escalate into expensive legal headaches. 

Unmasking the Hidden Tax Traps in Inventory Withdrawals

On March 20, 2025, the South Carolina Department of Revenue issued Revenue Ruling #25-3. This ruling cast light on a topic that often lurks in the shadows of compliance: how sales and use tax applies when businesses take tangible personal property (TPP) out of inventory for non-sale purposes. 

Whether the item is used by employees, consumed in operations, or distributed for promotions, these withdrawals are generally treated as taxable retail sales. The tax must be calculated based on the item’s fair market value, typically the retail price. If a business consistently offers discounts, the discounted price may be used. In clearance or liquidation scenarios, the wholesale price becomes the minimum taxable amount. For promotional giveaways, where items are transferred for little or no consideration, the full retail price is used as the tax base. 

The ruling also outlines exclusions, such as previously taxed display items, materials used in manufacturing for resale, warranty replacements, and educational donations. Dual-purpose businesses like hospitals, schools, and food service providers must report tax on both sales and internal use, using the retail price as the basis. 

This ruling serves as a reminder that inventory isn’t just about what’s sold—it’s also about how it’s used. Retailers should review their internal practices to ensure they aren’t overlooking taxable events hidden in day-to-day operations. 

Exemption Tricks and Treats

Food exemptions can be deceptively tricky. A recent decision from the New York State Division of Tax Appeals shows just how murky things can get when it comes to food preparation and taxability. 

In DTA No. 830368, the state upheld a sales tax assessment against a Buffalo deli that sold party platters containing sliced meats, cheeses, vegetables, condiments, and rolls. Although customers assembled the sandwiches themselves at home, the court found that the platters were taxable “prepared food.” The key factor was the level of preparation done by the seller. New York law states that cold food sold for off-site consumption is taxable if it’s sliced, packaged, or arranged in a way that makes it ready to eat. 

The deli owner argued that the platters were simply ingredients, not finished products. Despite an auditor’s prior verbal statement suggesting that the items weren’t taxable, the deli owner did lose the case. The court ruled that the items were designed for immediate consumption due to their pre-packaged treatment.  

This case is a reminder that it’s not just what you sell, but how you sell it. Retailers should carefully review how their products are prepared and presented to avoid unexpected liabilities. For more insights into how food items and other Halloween related items are taxed, check out this article. 

Avoid Getting Spooked by Sales Tax

Retailers face a growing maze of sales tax rules, and 2025 has proven that staying informed is more important than ever. From delivery fees and inventory withdrawals to food preparation and exemptions, each change carries real implications for how businesses operate and report. 

Understanding these updates isn’t just about avoiding penalties—it’s about building resilience in your retail operations. Whether you’re navigating new thresholds, rethinking how you handle inventory, or trying to decode food taxability, the key is preparation and awareness.