In addition to imposing a new metro-wide sales tax and adjusting the gas tax by the inflation rate, the recent Minnesota transportation bill to maintain infrastructure signed by Governor Tim Walz adds a new retail delivery fee. The Omnibus Transportation Bill, HF 2887, intends to raise significant revenue from these three tax and fee increases. Minnesota businesses were quick to voice opposition to the delivery fee as regressive when it was first introduced.
Beginning July 1, 2024, Minnesota will join Colorado, the only other state with a retail delivery fee to date, and impose a 50-cent fee on all retail delivery transactions equal to or exceeding $100, with a few exceptions and exemptions. With the intention of learning from Colorado’s implementation problems, the new law establishes a small-seller exemption as well as a provision to allow retailers to absorb the fee rather than pass on to the consumers. The fee does not apply generally to items that are not subject to the state’s sales tax, such as groceries, but does apply to clothing. If a delivery includes taxable and nontaxable items, the fee will still apply. To accommodate small businesses, sellers with retail sales less than $1 million are exempt from collecting the fee as well as purchasers generally exempt from sales tax. The sales receipt must state the fee separately and state that the fee is designated for road improvements.
Colorado businesses were adamantly opposed to the fee when it was introduced in 2021. The law ran into complications in Colorado when the question arose as to whether the fee was also subject to sales tax, as localities in the state handled the fee differently. Who was subject to the fee was also questioned when tool truck driving companies sold tools along a designated route. Although the reporting and remittance of the fees collected occurs at the same time as sales tax reports, a separate form is required in Colorado to account for the delivery fee. At this time, Minnesota has not yet designed a fee-reporting process.
Not to be left behind, New York has recently proposed AB 6008, which would introduce a $3 additional surcharge on online delivery transactions terminating within New York City. Although a “delivery transaction” is defined as a transaction resulting in the delivery of any item purchased online to a purchaser, several exemptions apply to medicine, diapers, baby formula, food, and “products consumed by humans for the preservation of health.” A separately reported form will be used to remit the fee, and the law as written does not include a small seller exemption.
Do three states imply a trend? This could just be the beginning, as more states see a retail delivery fee as a viable option to raise revenue.
If you need assistance in complying with the Colorado or Minnesota delivery fee laws, please contact our experts at Ryan for assistance. In the meantime, we will continue to monitor legislation for developments that may increase the number of jurisdictions requiring a fee for deliveries.
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