Executive summary: Minnesota follows Colorado with retail delivery fee
On May 24, 2023, Minnesota Gov. Tim Walz signed House File 2887, imposing a retail delivery fee on certain deliveries of tangible personal property effective July 1, 2024. Minnesota is the second state to adopt a delivery fee following Colorado in 2022. The fee is intended to help increase revenues for state transportation expenditures.
Minnesota adopts retail delivery fee
The retail delivery fee
The retail delivery fee is $0.50 on each transaction for Minnesota delivery that exceeds $100, excluding any state or local sales and use taxes. The bill defines a retail delivery as a delivery to a person located in Minnesota as a part of a retail sale of tangible personal property that is subject to tax and retail sales of clothing. The fee is imposed on retailers that made retail sales totaling $1,000,000 or more than in the previous calendar year and marketplace providers as defined by the state sales and use tax law.
The retail delivery fee may be collected by the retailer from the purchaser; however, it is not required and may be paid by the retailer. If separately stated on the invoice, the fee is excluded from the sales price for purposes of determining the sales and use tax charged by the retailer. If the retailer collects the fee from the purchaser, the retail delivery fee must be charged in addition to any other delivery fee and the total of the retail delivery fee and other delivery fees must be shown as separate line items and must be distinct from the sales price and any other taxes or fees imposed on the retail delivery. The retailer must state the retail delivery fee as “road improvement and food delivery fee.”
The fee is imposed once per transaction, protecting purchasers that require multiple shipments to deliver items in a single purchase. The fee is also nonrefundable if any or all of the items purchased are returned; however, the fee must be refunded if the retail delivery is canceled by the purchaser, retailer or delivery provider.
Retail delivery fee exemptions
The new law provides a number of exemptions from the fee. Exemptions to the retail delivery fee include the following:
- Transactions not subject to sales and use tax (with the exception of clothing).
- Deliveries in a motor vehicle for which a permit is issued by the Minnesota commissioner of transportation or a road authority and records kept by the retailer the delivery was on such qualifying vehicle.
- Delivery of food and food ingredients.
- Delivery by a food and beverage service establishment regardless of whether the delivery is by a third party other than the establishment.
- Delivery of drugs, medical devices, accessories and supplies or baby products.
Administration
A retailer must report the fee on a return prescribed by the commissioner and must remit the fee with the return. The return and fee must be filed using the filing cycle and due dates provided for the sales and use tax. A retailer that collects the fees from the purchaser must collect the fee in the same manner as they would do when it comes to sales tax. Third-parties that collect and remit sales tax on behalf of retailers may also collect the retail delivery fee. Audits, assessments, refunds, appeals, and other administrative provisions applicable to the fee are the same as those used in the sales and use tax law.
In February, the Minnesota Department of Revenue released additional guidance on complying with the new retail delivery fee. Specifically, the guidance provides examples of exempt items and transactions that should not be included in determining the $100 fee threshold such as drugs, medical devices and food. The guidance also addresses a number of administrative items including information on registrations and reporting, examples of how the fee should be charged in various invoicing scenarios and a list of frequently asked questions.
Takeaways
Minnesota is now the second state to impose a specified fee on deliveries into its state. Since the beginning of the pandemic, coupled with a general rise in e-commerce in the last two decades, the quantity of deliveries has skyrocketed, increasing road usage and wear and tear. Many states are looking for methods to increase revenues to help offset infrastructure costs. While the Colorado and Minnesota fees may appear similar, both include important differences. The Minnesota version of the fee appears to include additional exemptions and more detailed provisions that will help retailers determine when the tax is due. With a July 1, 2024 effective date, retailers delivering in the state should have time to prepare for the administration of the fee, although additional guidance from the Minnesota Department of Revenue is anticipated.
Noteworthy, Colorado recently amended the state’s retail delivery fee to create a small-seller threshold of $500,000 and, like Minnesota, provide subject retailers an option to pay the fee instead of charging customers.
Taxpayers with questions about retail delivery fees, or Minnesota sales and use tax changes, should reach out to their state and local tax advisers.
Originally published May 31, 2023, updated to reflect additional guidance.
