How The New Colorado Retail Delivery Fee Affects Florists
The Colorado State Department of Revenue recently announced a new Retail Delivery Fee that will go into effect on July 1, 2022.
Effective July 1, 2022, Colorado imposes a retail delivery fee 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.
Although it is called a “fee” it is clearly a tax, collected by the retailer from the end user and remitted to the government each month, just like state sales taxes.
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What Do Retail Florists Have To Do About The New Retail Delivery Fee?
Calculate & Collect
Retail florists must apply and collect a $0.27 Retail Delivery Fee on any sale that includes any taxable good(s) that is delivered by motor vehicle to a purchaser in the state of Colorado.
The new sales tax must appear on any invoice or receipt as a separate line item called “retail delivery fees”. This presents some special challenges for florists that will be covered later.
Report & Remit
The new retail delivery fee is to be reported and remitted at the same time as Colorado state sales taxes – typically on or before the 20th day of the month following each reporting period. For example sales taxes collected during the month of January are due on or before February 20, and the same thing goes for the new delivery fee.
Merchants that have special permission to file their sales tax returns on a different basis (quarterly, annually, etc.) file the new retail delivery fee return on that same schedule.
The retail delivery fee is applied throughout the state and does not need to be separated by jurisdiction. Although it is reported and remitted at the same time as state sales taxes a new form, DR 1786 (Retail Delivery Fee Return), is to be used.
It is important to note that a form DR 1786 return is required for every reporting period, even if no delivery fees were charged or collected during that period. It’s hard to imagine any florist going a month without making a single taxable delivery but if one was, for example, closed for an extended vacation or renovation they would still need to file a null DR 1786 each month.
When Do Florists Need To Do It?
Florists need to start charging collecting and disclosing the new delivery fee on July 1, 2022.
They will first file and remit some time after July 31 and before August 20 2022 – just like Colorado state sales taxes.
Florists will also require a new retail delivery fee account by July 1, 2022 but the state of Colorado will automatically create one for any retailer that has…
- an active sales tax account
- a retailer license
- reported any sales tax liability after January 1, 2021
That means most any existing florist will not have to worry about creating an account – the government will have done it for them, free of charge. And even if they miss a flower shop, completing and filing the Retail Delivery Fee Return (form DR 1786) for the first time will automatically register a Retail Delivery Fee account for that merchant. Any florist that is already in opration just needs to file their first Retail Delivery Fee return by August 20, 2022.
New shops that do not meet the criteria above will have to create a retail delivery fee account by submitting a CR 0100AP form.
Tax Exempt Customers & Products
There are some deliveries that will be exempt from the new delivery fee. The exact wording is:
If every item in a retail sale is exempt from sales tax, the delivery is also exempt from the retail delivery fee. However, if one or more items in the transaction are subject to sales tax, the retail delivery fee is due.
So if any part of the delivery order is subject to state sales tax the new retail delivery fee must be applied.
If however the entire sale (including service and delivery charges) is tax exempt then it is also exempt from the new retail delivery fee. Examples might include sales to tax-exempt organizations like churches, non-profits and government agencies but, again, the entire sale would need to exempt of all sales taxes.
The state is quite clear that wholesale sales are exempt from the new delivery fee:
Wholesale sales are not subject to the retail delivery fee.
So if a florist also sells wholesale, or is supplying a fellow flower shop that is low on product the new delivery fee would not be applied as long as no sales tax is being applied to anything in the order.
But, as has probably become clear by now, if any product on the sale is taxed, then the new delivery fee applies.
If delivery by motor vehicle to a location in Colorado includes both items for resale (wholesale sales) and goods subject to state sales or use tax, then the seller must collect the retail delivery fee.
Note: Free Delivery Is NOT An Exemption
If is important to note that not charging a delivery fee, offering free delivery, bundling delivery, calling delivery fees service charges etc. does not exempt the sale from the new delivery fee:
The retail delivery fee is based on the sale containing at least one item that is taxable for state sales or use tax and is due regardless of the shipping costs.
Special Considerations For Florists
Receipts & Invoices
The exact wording related to disclosure on customer facing receipts & invoices is as follows:
Retailers that make retail deliveries must show the total of the fees on the receipt or invoice as one item called “retail delivery fees”.
This presents a problem for the typical flower shop. Since they are typically charging (and disclosing) a traditional delivery fee already adding another delivery fee line item would look like they are double dipping or gouging the customer. And shops that offer free (or included) delivery face an even bigger problem – it will look like they are cheating.
So, with that in mind, florists might want to bend the rules a little and name the new retail delivery fee something like:
- Colorado State Delivery Fees (Tax)
- Colorado State Delivery Tax
- State Delivery Tax
It is very common in the flower industry to see multiple orders in a single sale – like the realtor that calls once a week to arrange for deliveries to a few different clients.
It appears that the state of Colorado would consider that such a sale should only have a single retail delivery fee applied:
The retail delivery fee is based on each sale to the customer. If a customer orders a number of items in a “cart”, and purchases all of the items at the same time, only one retail delivery fee is due regardless of how many deliveries are actually needed to complete the sale. Alternatively, if a customer orders a number of items and completes the purchase of each item at different times, the retail delivery fee is due on each sale, even if only one delivery is needed to complete the sale.
To anyone in the flower business this might seem strange. It’s likely the new fee was drafted with retailers like Amazon in mind, where sometimes a single order is split into multiple deliveries based on a number of factors that are largely invisible to the consumer.
And in that context it makes sense – if a person places an order for three items from Amazon it wouldn’t really be fair to charge them three separate delivery fees only because it was more efficient for Amazon to ship each item from a different fulfillment center.
In the case of an employer sending poinsettias to the homes of multiple employees… not so much. And if the state realizes they are missing out on revenue in such cases the rule may change. But for now it means that no matter how many deliveries are included in a single sale only one retail delivery fee should ever be applied.
Pick up orders are common in the floral industry and are exempt from the new retail delivery fee.
But… there is a wrinkle:
If the retailer has to use a motor vehicle to transport the items at any point after the items are sold, the retail delivery fee applies.
Again this is likely based on the Amazon model, where orders are frequently shipped to Amazon Lockers for pickup, and the state wants to collect the new fee on those orders as well.
So, strictly speaking if a florist had multiple locations and needed to move a product from one to another from where it would be picked up after it was sold, it seems the new retail delivery charge should be applied.
Deliveries Without The Use Of A Motor Vehicle
Strictly speaking it seems the new retail delivery fee is only applied if the delivery is made by a motor vehicle (including electric; possibly even electric bikes and scooters):
The fee is due on retail sales that are delivered by a motor vehicle. A motor vehicle is any self-propelled vehicle that is designed primarily for travel on the public highways and is generally and commonly used to transport people and property over the public highways or a low-speed electric vehicle.
One interpretation would be that deliveries made by bicycle or on foot (this sometimes happens wth shops in densely populated areas like a downtown core) would be exempt. But it also says this:
The retailer must consider all modes of transportation used to make the delivery; including, from the time immediately after the acceptance of the order, until the items are delivered to the purchaser’s specified location.
That could be taken to mean that if a florist took an order on Monday for bicycle delivery on Wednesday, but used a truck to pick up the supplies to make the order on Tuesday then the retail delivery fee would still apply.
Probably safest to apply the fee to all deliveries regardless of how they are to be made.
Many florists use 3rd party providers (courier services, shared delivery pools, taxis, ride sharing services, freelancers, etc.) to make their deliveries. In such cases the fee still applies:
The retail delivery fee will apply whether the motor vehicle used to deliver the goods to the customer is owned or operated by the retailer or by any other person.
And the florist is still responsible for collecting and remitting the tax:
The retailer that collects and remits sales or use tax is required to collect and remit the retail delivery fee.
Should the 3rd party delivery provider also charge their customer (the florist) and remit the delivery fee? That depends:
The retailer that collects and remits sales or use tax is required to collect and remit the retail delivery fee. If the 3rd party delivery service collects and remits sales or use tax, they would also be required to collect and remit the retail delivery fee.
It seems that if the 3rd party delivery provider currently charges the florist sales or use tax on their delivery services then yes, that provider would also charge the florist the new retail delivery fee.
This means that in addition to charging the retail customer the new retail delivery fee as required, some florists may want to build an additional $0.27 cents into their own delivery charges to offset the increased cost of outsourcing delivery to a 3rd party provider that will also charge them.
The Wrong Way Of Handling The New Retail Delivery Fee
The state of Colorado gave very little notice on this, approximately 30 days. This does not give the companies that provide the technology florists use to calculate taxes and process sales (e-commerce providers, POS companies, etc.) much time to update their software.That means they are going to come up with some pretty ugly hacks that put the florist at risk.
Expect to see suggestions like…
Just Add $0.27 To Your Delivery Fee!
It’s an easy “fix” but it does not even come close to meeting the requirements the state of Colorado has set out. Remember:
…the retailer must list the fee as a separate item called “retail delivery fees” on the receipt or invoice issued to the purchaser.
Just adding it on to the delivery fee, even adding text to the description explaining that the delivery charges includes the new sales tax is not good enough.
Doing it this way would also falsely inflate revenue and throw off sales taxes – it would be calculating sales tax on the new delivery tax.
Just Add A New Line Item!
This would involve adding a new line item to each delivery for a product called something like Retail Delivery Charge at a price 0f $0.27.
The first problem is that as a manual process it’s:
inconvenient; running a flower shop is hard enough without having manually add another item to every delivery order
fallible: it will sometimes be missed
And, again, it involves falsely inflating revenue and charging tax on tax. This approach also skews sales by product reporting.
What Is The Right Way For Florists To Tackle The New Colorado Delivery Fee?
Florists need a POS system that…
- automatically calculates and applies the new Colorado state retail delivery fee appropriately, one that does not require it to be manually added as a separate line item
- discloses the new delivery fee as a separate line item on receipts and invoices as required
- provides a dedicated retail delivery fee report that presents a simple “bottom line” number to help florists complete the new DR 1786 return each month, and does not require them to mix and massage numbers from multiple reports
- does not throw off or necessitate adjustments to other reports (like sales, sales by product, etc.)
- does not overstate sales or calculate sales tax on top of the new retail delivery fee
At FloristWare we believe that for most florists accounting is a distraction at best and a nightmare at worst. Most florists got into the flowers business because they liked flowers and wanted to make some money, not because they loved bookkeeping.
With that in mind we have also pared down everything to streamline and automate as much of the bookkeeping and accounting involved in running a flower shop as possible. We even have a feature that automatically bundles up all the relevant reports and sends them to your accountant.
And we aren't going to let this new retail delivery fee change anything. We have always taken sales tax reporting seriously and are proud to automate the correct calculation of these new delivery fees, properly disclose them on receipts and invoices, and offer a simple report that makes filling out the new delivery fee return form DR 1786 quick and easy. FloristWare makes it easy for Colorado florists to do everything right.