Editor: Mary Van Leuven, J.D., LL.M.
In most states, fuel tax revenues are the primary funding source for the construction and upkeep of highways and other transportation modes. The continued growth in fuel–efficient vehicles on the road has had a negative impact on the role of fuel tax revenues in the transportation funding structure. As states have struggled to identify alternative revenue–raising solutions, one approach has recently gained interest: retail delivery fees (RDFs). Sometimes referred to as “doorstep taxes,” RDFs can broadly be understood as charges imposed on the delivery by motor vehicles to consumers of products purchased at retail. This item summarizes how RDFs work, highlights some challenges associated with them, and provides thoughts for taxpayers to stay in compliance with state RDF requirements.
How retail delivery fees work
Two states have implemented RDFs — Colorado and Minnesota. Colorado was the first to implement its RDF, effective July 1, 2022 (see Colo. Rev. Stat. §43–4–218(1)(e)), with Minnesota following, effective July 1, 2024 (see Minn. Stat. §168E.03). Often, states will take legislative ideas from each other, as evidenced by the similarities in the Colorado and Minnesota RDF regimes, along with new proposals in a handful of other states. Although the Colorado and Minnesota RDF regimes share similarities, businesses should be aware of some key differences.
The Colorado approach: Colorado imposes a $0.29 RDF on all retail deliveries made by: (1) retailers and marketplace facilitators having $500,000 or more in retail sales of tangible personal property, commodities, or services to purchasers located in Colorado in the previous calendar year, and (2) retailers and marketplace facilitators that are not required to collect Colorado sales tax because they have no physical location in Colorado and who have more than $100,000 in retail sales of tangible personal property, commodities, or services in Colorado in the previous calendar year. Retail deliveries are defined as retail sales of tangible personal property by a retailer that are delivered to the purchaser at a location in Colorado by a motor vehicle owned or operated by the retailer or any other person, and the sales include at least one item of tangible personal property that is subject to Colorado sales tax. Simply put, if a taxpayer exceeds the revenue thresholds and sells tangible personal property subject to Colorado sales and use tax and then delivers that tangible personal property via motor vehicle to purchasers located in Colorado, the RDF applies.
Businesses subject to the RDF are required to file a separate Form DR 1786, Retail Delivery Fee Return. Reporting schedules for the RDF mirror the taxpayer’s Colorado sales and use tax reporting schedules (i.e., monthly, quarterly, or annually). A single return should be filed regardless of the number of locations the taxpayer has in Colorado, and the tax is calculated by multiplying the number of retail deliveries by the fee rate. Notably, a single retail delivery is a single transaction, notwithstanding that a single transaction may consist of multiple deliveries to fulfill said single transaction. For example, if it takes three deliveries to fulfill a single transaction, the total amount of retail deliveries subject to the RDF is still one.
The Minnesota approach: Minnesota imposes a $0.50 RDF on each transaction made by: (1) retailers that had $1 million or more in retail sales in Minnesota in the previous calendar year and (2) marketplace facilitators that had $100,000 or more in retail sales through their marketplace in the previous calendar year. The RDF applies to transactions of $100 or more, comprising tangible personal property subject to Minnesota sales tax and clothing (which is exempt from Minnesota sales tax).
Dissimilar to Colorado, Minnesota provides specific exemptions (i.e., products are excluded in determining whether the delivery meets the $100 threshold) from its RDF for the retail sale of certain items, including food and food ingredients or prepared food; drugs and medical devices, accessories and supplies; and certain baby products, even though some baby products exempt from the RDF are subject to Minnesota sales tax. The dichotomy between Minnesota’s sales and use tax base and the RDF base arguably creates compliance difficulties because in certain scenarios, sales and use tax applies to deliveries of tangible personal property where the RDF does not and vice versa.
Businesses subject to the Minnesota RDF are required to register for it and report the fee on the RDF line of the Minnesota Sales and Use Tax return. Like Colorado, Minnesota’s RDF is imposed once per transaction, regardless of the number of shipments required to fulfill the transaction.
While there are differences in the Colorado and Minnesota RDFs, they share several common traits:
- RDFs do not apply to wholesale sales or customer pickups;
- Liability for the RDF is borne by the retailer, not the purchaser;
- Retailers have the option of collecting RDFs from customers or absorbing them; and
- If collected from customers, the RDF must be separately stated on the invoice or receipt.
Watch out for bumps in the road
Growing pains are anticipated when implementing new tax or fee regimes, and businesses should be aware of a few bumps in the road that have been identified for RDFs.
Tracking thresholds: The economic nexus thresholds for sales tax purposes are, for Colorado, $100,000 of retail sales and, for Minnesota, $100,000 of retail sales or 200 separate retail transactions. The thresholds governing the RDF, however, differ from those requiring sales tax collection. For Colorado, the RDF thresholds are $500,000 for retailers and $100,000 for marketplace facilitators; in Minnesota, the thresholds are $1 million for retailers and $100,000 for marketplace facilitators. This requires businesses to separately track RDF thresholds from sales tax nexus thresholds, which creates an added process to develop and monitor.
Lack of uniformity: Minnesota’s sales and use tax base and those items to which the RDF applies lack uniformity, which can present challenges for some businesses. As previously noted, certain categories of tangible personal property (e.g., certain baby products) are excluded from the RDF but are subject to the Minnesota sales tax. Conversely, the RDF applies to shipments of clothing, which are exempt from the sales tax. These discrepancies complicate taxpayers’ internal systems for determining the proper tax or fee on customer invoices. Additionally, explaining why the RDF is being imposed on an otherwise tax–exempt transaction may create a customer service issue. In response to this issue, Minnesota Senate File 41, introduced during the 2025 legislative session, proposes to limit the imposition of the RDF only to items of tangible personal property subject to Minnesota sales tax.
This issue is less important in Colorado because the RDF applies to retail deliveries of tangible personal property unless all items in the delivery are exempt from the sales tax. Businesses should note, however, that Colorado sales tax applies to tangible personal property and specifically enumerated services, and the thresholds for the Colorado RDF are based on sales of tangible personal property, services, and commodities delivered to purchasers, which may lead to some differences.
Collection and reporting: In both states, payment of the RDF is a mandatory obligation borne by the retailer. Also in both states, the seller has the option to either: (1) collect RDF from the purchaser or (2) absorb the RDF themselves. The latter may be an attractive approach to some, offering more control over the RDF compliance process at a small cost per transaction.
However, complexities may arise when retailers elect to pass on the RDF to customers. In these instances, the RDF must be separately stated and appropriately identified on the customer’s invoice or receipt. To the extent that the RDF is not separately stated, it is considered absorbed by the retailer. In Minnesota, a separately stated RDF is not considered part of the purchase price of the item and is not subject to the retail sales tax. A separately stated RDF is not part of the state sales tax base in Colorado, but certain Colorado home rule jurisdictions may include the RDF in their sales tax base.
From a reporting perspective, both states have different requirements. Colorado provides for a separate RDF return, whereas Minnesota includes the RDF on its own line on sales and use tax returns. This nonuniformity may create additional complexity for sellers operating in multiple states.
What is the outlook?
RDFs run into some opposition in state legislatures, mainly involving the equity of imposing a burden on purchasers of delivered items to finance roads and bridges. Nonetheless, state legislatures continue to propose RDF regimes as they search for transportation funding sources.
In the current 2025 legislative session, states such as Hawaii (S.B. 1124) and Mississippi (H.B. 530) have proposed legislation that mirrors the Minnesota approach to RDFs, with several exemptions creating a lack of uniformity with the sales tax base. By contrast, Maryland (S.B. 321 and H.B. 352) and Vermont (S. 75) have proposed RDFs with a tax base that aligns with the sales tax base. Perhaps the most complex proposal from a compliance perspective was put forth by Indiana (H.B. 1461) and provided for a county–level RDF. If the bill including this proposal had been signed by the governor, counties would have been permitted to choose whether to impose an RDF and at what rate (between $0.50 and $1.00 per delivery), creating a municipal compliance mélange. This proposal was removed from the bill.
The undeniable fact is that RDFs raise money. Colorado’s RDF generated $93 million in fiscal 2024, and Minnesota’s RDF is projected to generate $35 million through June 2025. State legislatures consider these amounts significant and will likely continue to propose new RDF regimes. Taxpayers can prepare themselves in the following ways: first, by continually tracking state legislative updates for RDFs; second, by understanding items on which current and prospective RDF are imposed; and, finally, by having an internal process for tracking thresholds and mapping taxability for RDF purposes. Various tax engines have current RDF content to assist with these issues. Taking these steps will help taxpayers from going off the road with RDF compliance.
Editor Notes
Mary Van Leuven, J.D., LL.M., is a director, Washington National Tax, at KPMG LLP in Washington, D.C.
For additional information about these items, contact Van Leuven at mvanleuven@kpmg.com.
Contributors are members of or associated with KPMG LLP.
The information in these articles is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of Section 10.37(a)(2) of Treasury Department Circular 230. The information contained in these articles is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. The articles represent the views of the authors only and do not necessarily represent the views or professional advice of KPMG LLP.