E-commerce is now a defining force in modern retail. In 2023, online transactions in the United States surpassed $1.1 trillion, making up about 22% of all retail sales. This figure is expected to grow to $1.9 trillion by 2029, highlighting the rapid rise of digital commerce.[1] Advances in technology, the expansion of last-mile delivery services, and the widespread use of mobile devices are all driving this shift, fundamentally changing how consumers discover and purchase products.
This remarkable trajectory, however, places new pressures on the transportation infrastructure that underpins doorstep delivery. Highways, roads, and bridges have historically been maintained with fuel tax revenues, but as vehicles become more fuel-efficient and electric vehicles rise in popularity, these taxes are failing to keep pace with the costs of upkeep and expansion.[2] In light of these developments, certain states have begun adopting or considering Retail Delivery Fees (RDFs)—a targeted levy designed to supplement traditional tax structures and allocate revenue toward infrastructure needs.
Retail Delivery Fees apply to delivered goods in ways that may overlap with, but remain distinct from, standard sales taxes. Colorado and Minnesota offer early examples of state-specific RDF implementations, each presenting a flat per-order fee. However, these laws also reveal how RDFs can introduce unique rules and exemptions.
In Colorado, for instance, the RDF takes the form of a uniform charge added to many types of taxable deliveries. Minnesota’s approach diverges not only in the rate structure but also in its applicability, sometimes extending the fee to items like clothing even though such items are traditionally exempt from sales tax within the state.[3][4] These variations underscore the challenge for retailers that must adapt to disparate guidelines and requirements.
Colorado was the first state to implement an RDF, currently set at 29 cents per order on retail deliveries involving tangible personal property that is subject to sales tax. In general, a retailer is not liable for this fee if the retailer’s total retail sales in Colorado in the prior year were $500,000 or less. Additionally, if a retailer has no physical location in Colorado and total annual Colorado retail sales of $100,000 or less, they are also exempt from collecting the fee. For businesses that exceed these thresholds, the RDF must be collected and remitted, although Colorado permits sellers to absorb the cost rather than listing it separately on customer invoices. Notably, any invoice containing a taxable item triggers the fee, and the state has also put in place annual inflationary adjustments to ensure the rate remains aligned with economic changes over time.[3]
Minnesota introduced its RDF with a fee of 50 cents per order, which applies when the retail delivery transaction equals or exceeds $100. Under state law, businesses with $1,000,000 or more in Minnesota retail sales during the previous calendar year are required to collect and remit this fee, while retailers falling below that threshold are exempt. In addition, marketplace providers that facilitate sales for a retailer whose Minnesota retail sales through the marketplace totaled less than $100,000 in the previous calendar year are similarly exempt. When determining whether these sales thresholds are met, retailers must include both taxable and nontaxable transactions but exclude sales made for resale, provided the purchaser supplies an appropriate exemption certificate.
For businesses required to collect the RDF, sellers have the option to absorb the fee rather than explicitly passing it on to consumers. Many taxable items are subject to the fee, although most food deliveries remain exempt. One of the most distinctive aspects of Minnesota’s RDF is its inclusion of clothing, a category that is typically exempt from state sales tax. However, certain items, such as diapers, remain exempt from the RDF, even though they are categorized as clothing in other tax contexts. These nuances add an extra layer of complexity for retailers navigating Minnesota’s RDF requirements.[4]
A growing number of states have investigated or proposed their own RDF structures, reflecting the broader trend of tapping into e-commerce deliveries to bolster infrastructure budgets:
Though these proposals vary in terms of fees, thresholds, and the goods included or exempted, they collectively signal a wider pattern of states seeking to augment or replace tax revenues with levies on rapidly growing e-commerce transactions. For businesses, an expanding patchwork of RDFs across multiple jurisdictions will create an increasingly complex compliance environment.
Retailers that must collect and remit RDFs face a dynamic and sometimes unpredictable compliance landscape. States frequently adjust tax laws, expand definitions, and update exemptions, creating an environment where managing these fees requires continual monitoring. Moreover, certain goods that are tax-exempt may still trigger an RDF, leading to scenarios in which traditional sales tax logic does not apply in the straightforward manner businesses might expect.
One of the added complexities of Retail Delivery Fees is the introduction of a unit-based fee model alongside the more common revenue-based approach. While unit-based taxes are common in industries like food and beverage, hospitality, telecom, and energy, where fees are often calculated based on quantity or usage, applying this approach alongside traditional sales tax in general retail presents a new and unfamiliar challenge for many businesses. Suddenly, items that were previously assessed strictly on a percentage-of-sale basis may also be subject to flat fees per unit or per transaction, creating an additional layer of calculation and reporting obligations.
Another challenge with RDFs is the lack of a refund or credit mechanism when an item is returned. In traditional sales tax systems, retailers can often reclaim the tax paid on a refunded or credited item, but RDFs operate differently. Because the fee is tied to the act of delivery, which is a one-time event, it remains non-refundable even if the customer returns the product. This means businesses must still remit the RDF, regardless of whether the sale is reversed. For retailers that process a high volume of returns or exchanges, this creates additional complexities in reconciliation and recordkeeping, adding to the overall administrative burden of compliance.
The lack of long-standing administrative precedents for RDFs further complicates matters. Because these fees are a relatively recent innovation, businesses cannot rely on established case law or widely accepted guidance to clarify every ambiguity. Consequently, retailers bear much of the responsibility for staying current on legislative changes, interpreting the specifics of each state’s rules, and developing robust processes to ensure accurate fee collection and reporting. This heightened diligence is vital not only to avoid costly penalties but also to maintain smooth, customer-friendly operations in an increasingly complex regulatory environment.
To manage the increasing complexity of RDFs, businesses need a proactive and well-organized strategy. Keeping up with legislative changes allows companies to quickly adjust internal procedures and pricing strategies, thereby reducing the risk of unexpected compliance issues. Regular audits of tax calculations and recordkeeping can help identify discrepancies early, preventing them from developing into costly liabilities.
A key component of this strategy is the use of a robust tax calculation solution. Modern tax engines integrate seamlessly with existing e-commerce, ERP, and POS systems, automatically updating to reflect the latest rules and rates across multiple jurisdictions. Whether dealing with a flat fee, a threshold-based model, or a more complex usage-based structure, an automated system can quickly adapt to new or revised state requirements.
Advanced tax calculation platforms also streamline operational workflows and significantly reduce the administrative burden that comes with constantly changing regulations. By automating routine tasks, businesses can focus on strategic initiatives, such as enhancing the customer experience or expanding into new markets, rather than getting caught up in the complexities of compliance.
Ultimately, by leveraging automated compliance solutions with a robust tax calculation platform, maintaining updated processes, and conducting regular internal reviews, retailers can establish a strong defense against the pitfalls of RDF misinterpretation or under-collection. While the recent proliferation of Retail Delivery Fees may present fresh challenges, an informed and technologically prepared approach equips businesses to adapt confidently and ensure compliance as the regulatory landscape continues to evolve.
The implementation of Retail Delivery Fees marks a significant evolution in how state governments finance essential infrastructure and transportation improvements. As e-commerce continues its rapid growth, there is an increasing likelihood that more jurisdictions will adopt these fees as part of their funding strategies. This trend makes it critical for businesses to closely monitor legislative progress and emerging compliance requirements.
For retailers, staying ahead in this dynamic environment requires a comprehensive approach. Proactive monitoring of legislative developments is essential, as is the integration of advanced automation processes and calculation systems that can streamline the process of determining and remitting fees. Regular and thorough compliance reviews also play a key role in ensuring that evolving obligations are met consistently. While the complexity of Retail Delivery Fees may seem daunting at first, employing the right strategies and tools will enable businesses to navigate these challenges successfully without impeding growth.
About the Author
Mike Sanders is a tax technology entrepreneur with over 30 years experience building and scaling successful businesses. In 1998, he co-founded Tax Partners, growing it into the nation’s largest sales tax compliance service bureau before its acquisition by Thomson Corporation. In 2010, he co-founded SureTax, the first SaaS tax calculation platform tailored for the telecom and energy sectors, which was later acquired by Wolters Kluwer.
Currently as CEO and co-founder of CereTax, he leads the company’s vision and strategy, ensuring the development and delivery of a next-generation cloud-based sales tax automation platform designed to help businesses navigate complex compliance and regulatory requirements with greater accuracy and efficiency. Visit CereTax at www.ceretax.com .
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