Colorado’s home-rule cities — notably Denver and Aurora — are collecting local sales tax on the new statewide retail delivery fee, which took effect July 1.
That’s despite the new law that created the fee specifically saying it’s exempt from local sales taxes.
Under Senate Bill 21-260, the 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 is part of the transportation package the Legislature passed in 2021 that is expected to generate hundreds of millions of dollars in 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.
Aurora officials say the way the city’s tax laws are written require they tax the fee as part of the total “purchase price.”
“Aurora, as a home-rule city in Colorado, has similar but different definitions that apply to the collection of sales taxes,” spokesman Ryan Luby said via email. “Part of Senate Bill 21-260, which ushered in the new fee, included a change to the state’s definition of purchase price to exclude the retail delivery fee and essentially lowered the price used to calculate the sales tax. The city of Aurora has not made a similar change to its definition of purchase price.”
Adding the $0.27 fee to a $10 taxable good delivered in Aurora, for example, means a total purchase price of $10.27, which is subject to the city’s 3.75% tax rate. That adds 1 cent to the total amount customers would have to pay.
The city’s position outraged at-large City Councilman Dustin Zvonek, who said he’s directed the city attorney to draft an ordinance that would exempt any local or state fee from city sales tax.
“I think it’s indefensible,” Zvonek said. “Whether you call it a tax or a fee to apply sales tax. ... It’s absurd because this fee is not a service or a product.”
Zvonek said the new retail delivery fee might not be the only one getting taxed based on the city’s definition of “purchase price.”
“I think we’re going to expose a much bigger challenge. The reason I say that is I think there’s a chance (we’re taxing) all sorts of fees – state fees, city fees, potentially even district fees,” he said. “It’s going to be a much bigger issue.”
Colorado Municipal League Executive Director Kevin Bommer agrees.
“Their (home-rule cities) ordinance says they collect sales and use tax on the purchase price. The way it’s written, the way it’s defined, includes the fees on the purchase price,” Bommer said. “I’m going to bet that there’s other fees that are included in purchase price.”
The League, which seeks to “protect and promote municipal interest and priorities,” is collecting survey data on the issue from the 69 home-rule cities that collect their own sales taxes.
“This may require a slight tweak in their definition of purchase price,” Bommer said.
“We’ve worked very closely with the business community on standardizing definitions over the years,” he said. “We’ve been sensitive to the impact of changes that cause point-of-sale systems to be reprogrammed.”
Here’s another layer of complication. Whether Aurora taxes the state delivery fee depends on whether city imposes a tax on on a item.
“Our tax division folks note that Aurora currently exempts diapers, but the state does not,” said Luby. “So, if someone in Aurora were to have diapers delivered by motor vehicle, the delivery fee and the state’s sales tax would apply, but no city sales tax would apply.”
Any change to Aurora’s ordinance will require a fiscal note that estimates how much revenue the city will lose, Zvonek said.
The City of Denver and Colorado Springs did not respond to an email inquiry from the Denver Gazette by Friday afternoon.