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Will Washington state join the fee-for-all?

Sales & Use Tax

More states are ramping up retail delivery fees. While these fees do not technically qualify as a form of indirect taxation, they add to the compliance burdens indirect tax groups manage.

Washington appears likely to join Colorado and Minnesota – the two states that have retail delivery fees in force. While Washington has yet to finalise its rules, the state’s Joint Transportation Committee issued a report that analyses the revenue gains, impacts and business challenges this type of fee would generate. The report is a whopper, weighing in at 76 pages and more than 17,000 words.

Rather than foisting a lengthy summary on you, I want to zero in on what’s most relevant to indirect tax groups – namely, the report’s analyses of compliance burdens to businesses (Section 9). This discussion is insightful yet more concise than other sections. Those sections explore Colorado and Minnesota’s retail delivery fees, potential revenue for Washington from a similar fee, and the evolving retail landscape in the state, including the rise of online sales.

The compliance burdens in the report are as follows:  

  • Higher administrative costs: These include staffing costs, staff time and the implementation (and/or upgrade) of technology systems (e.g., point-of-sale systems and tax automation platforms).
  • Potential price increases: Some companies might choose to increase prices to cover the cost of the new fee. Doing so could negatively affect customer relationships and competitiveness.
  • Potential customer behaviour changes: In response to the fee and any pricing adjustments, consumers might elect to reduce online purchasing and increase brick-and-mortar buying. These are changes that would require companies to invest in adaptations.
  • Operational challenges: Complex orders (such as those involving multiple deliveries) would raise questions about how to apply the fee and could require problem-solving across multiple business groups.
  • Complications that arise due to interactions with local regulations: The report cites Seattle’s PayUp Programme, which is designed to ensure that delivery drivers’ pay is transparent and reasonable, as a rule that could make fee compliance more difficult.

The report also mentions different forms of competitive disparities that could arise. Smaller companies might bear a comparatively higher compliance burden, for example, while Washington-based companies “may face a competitive disadvantage compared to those in neighbouring states without such a fee, potentially impacting cross-border commerce.”  

Kudos to Washington’s Joint Transportation Committee and DOR (which publishes plenty of sharp policy papers) for providing an in-depth analysis of retail delivery fees. The report’s purpose statement is also applicable to most other states: “As states grapple with the need to keep up with basic road maintenance due to declining fuel tax revenue, increasing construction costs, and growing demand, policymakers are faced with the task of finding new sources of revenue to ensure streets and bridges are adequately maintained. Washington is no exception.”

That said, Washington would be the exception (so far) if its final retail delivery fee rules avoided some of the pitfalls that exist in Colorado and Minnesota’s rules. I describe those shortcomings  and offer up potential improvements in this post.

Disclaimer

Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position or opinion of Vertex Inc.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Chief Tax Officer, Transaction Tax

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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