Three of Colorado’s largest cities have changed, or are in the process of changing, city laws that allowed for collecting sales taxes on government fees.

Denver on Monday passed, on first reading, an ordinance “to exempt from taxation certain fees.” If the measure passes a second reading Aug. 22, it will become law.

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Under Senate Bill 21-260, a 27 cent fee must be collected and paid to the state by retailers “on all deliveries by motor vehicle to a location in Colorado with at least one item of tangible personal property subject to state sales or use tax.”

The fee, which took effect July 1, is part of the transportation package the legislature passed in 2021 that is expected to generate hundreds of millions of dollars in the coming years for road improvements, transit projects and electric vehicle programs.

But the fee has caused confusion not only among retailers implementing it and their accountants, but also with local governments.

While the legislature wrote an exception for taxing the fee in state law, Colorado’s home rule cities like Denver, Aurora and Colorado Springs had laws on the books defining any government fee as part of the “total purchase price.”

“State law and city law conflicted (on) taxing fees, and that’s not OK,” said Denver City Councilwoman Amanda Sawyer, head of the Finance and Governance Committee. “We should not be taxing any fees.”

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It wasn’t a huge amount, but the ordinance corrects the issue “on principle,” Sawyer said.

Adding the $0.27 fee to a $10 taxable good delivered in Aurora, for example, means a total purchase price of $10.27, which was subject to the city’s 3.75% tax rate. That adds 1 cent to the total amount customers would have to pay.

But Aurora finalized a change to its sales tax law last week, said At-Large Councilman Dustin Zvonek.

“Any new state fee, or city one for that matter, we’d be prohibited from collecting tax on it,” Zvonek said. “That really needed to happen.”

Colorado Springs is weighing the change too, which could come before City Council in September, Chief Financial Officer Charae McDaniel said via email Tuesday.

The Colorado Municipal League started to survey its member cities, but many were in the processes of changing the law like Denver, Aurora and Colorado Springs. So it sent out proposed language for cities to amend their own sales tax law’s definition of “total purchase price.”

The league, which seeks to “protect and promote municipal interest and priorities,” estimated 69 home-rule cities collect their own sales taxes.

“I’ll be surprised if there are any left with it on their tax base by October,” Executive Director Kevin Bommer said via email.

Zvonek said city finance officials estimated not taxing fees would mean an estimated $250,000 per year drop in potential revenue “between the delivery fee and the waste tire fee.

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“That did not include the saving that will come from not taxing the bag fee that goes into effect in January of 2023,” Zvonek said via email.

Denver’s bag fee would also not being taxed if the measure passes on second reading Monday.

“We need to reduce costs for taxpayers and address cost of living increases,” Zvonek said. “Those fees are always small when they’re created, a quarter percentage here and half a percentage there. But they add up. The practice of taxing fees was not defensible. This is another way for the government to save taxpayers some money.”