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July 25, 2022

New Retail Delivery Fee Impacts Colorado Cannabis Buyers and Sellers

The Colorado Department of Revenue (CDOR) recently imposed a new retail delivery fee of $0.27 per transaction starting on July 1, 2022. Certain vendors are required to collect the fee on sales of tangible personal property (TPP) delivered to a consumer in Colorado — if the item is delivered to the consumer via a motor vehicle. Of course, TPP includes cannabis, which is often delivered directly to consumers; thus, any sales and deliveries made on or after July 1, 2022, are affected.

On September 19, the Denver City Council modified the city’s cannabis delivery program to encourage more commerce and spur social equity ownership within the industry. The new rules will take effect in October.

To provide some clarity on this new fee for cannabis retailers located in Colorado, we answer some of your commonly asked questions.

What exactly is the new retail delivery fee charge? What kind of sale is it collected on?

As we stated, this new charge impacts tangible property, including cannabis products, that are delivered to a location within the state of Colorado by a vehicle. It is $0.27 per sale (regardless of the number or value of the items delivered).

And … cannabis counts as “tangible personal property?”

It does. CDOR defines tangible personal property as “all goods, wares, merchandise, products and commodities, and all tangible or corporeal things and substances that are dealt in and capable of being possessed and exchanged.” While several things are exempt from sales tax, cannabis products are not included — thus, this delivery fee applies to cannabis too.

What if I use a third-party vehicle to deliver my goods?

Whether you use a company-owned vehicle or a third-party organization, every seller must collect this 27-cent fee from its customers. The company facilitating the transport of cannabis products bears no responsibility for the fee.

Are there any sales that are exempt from this new charge? What about sales of cannabis otherwise exempt from the Colorado Delivery Fee?

Yes, wholesale transactions (or other tax-exempt purchases) don’t have to collect the retail delivery fee. This includes wholesale cannabis deliveries, making them exempt from the delivery fee. Sales of exempt tangible personal property (i.e., items for resale) will be exempt from the fee unless one item of tangible personal property subject to sales or use tax is included in the delivery. In that case, the delivery fee would apply.

Who is responsible for the fee?

Both the buyer and the seller, in a way — as the seller of the item(s) being delivered, you must collect the fee. But the customer is responsible for paying the fee once you have charged them — and it must be listed on your invoice as a separate item (shown on the receipt as “retail delivery fees”), so there is full transparency.

Do I have to register for this?

Businesses that have a sales tax collection obligation are required to also collect the delivery fee in addition to sales tax. If your business has already registered for sales and use tax, then you will automatically be registered for this additional retail delivery fee (with a Retail Delivery Fee Account). As mentioned above, third party delivery companies that would not otherwise charge sales tax, are not subject to this new fee.

Can I report this new fee on the same return as the Colorado sales and use tax? When is it due?

The fee must be reported on its own return called the Retail Delivery Fee Return (DR 1786), which is separate from the state-wide Colorado Sales and Use Tax System (SUTS) return or other local Colorado returns. However, both are due on the same date, or by the 20th day of the month after the reporting period. There are plans to incorporate the return into SUTS, but the feature will not be available until later this year.

July 1 has come and gone. Will I be penalized for failing to implement this quickly?

No. CDOR has generously decided to provide some leniency, as it received feedback that listing and collecting the fee by the July 1 start date would prove challenging. Informal guidance says if you fail to separately state the fee, you will not incur penalties or interest — given you do the best you can to implement the separate statement requirement.

The buyer will still be required to pay the fee whether you collect it from them or not, and you, the retailer, will still be responsible for remitting the fee for any transactions made on or before July 1, 2022, even if you did not charge it to the buyer.

Our perspective on the new delivery fee in Colorado

There is no question this fee, imposed while the country is experiencing record-setting inflation and sky-high fuel prices, has caught consumers and businesses alike by surprise. While you, the seller, do not have to pay the fee, your potential customers do — and this impacts everything they buy that gets delivered (including restaurant delivery). These add-ons will stack up, and with Colorado’s cost of living already rising, consumers may have to start budgeting, indicating this could affect your bottom line in the future.

Rely on cannabis and tax professionals

If you have any questions about the new fee, such as how to file this separate tax return or collect the tax from your customers, contact MGO’s team of Tax professionals.

MGO is positioned as a national leader in both tax advisory and cannabis accounting and financial best practices.

About the author

Ilias Savakis is a State & Local Tax Manager at MGO. He has over five years of experience in Sales and Use Tax compliance and consulting. Contact Ilias at ISavakis@mgocpa.com.