Are Shipping Charges Taxable in Colorado?

Understanding the taxability of shipping charges in Colorado is important for businesses and consumers. Navigating these rules ensures compliance with state regulations. Properly identifying when sales tax applies to delivery fees helps businesses accurately collect and remit taxes, avoiding potential penalties.

Taxability of Delivery Charges

In Colorado, if an item is subject to sales tax, then any associated delivery charges are also generally subject to sales tax. This principle applies whether the delivery charge is explicitly stated on the invoice or included within the overall price of the item. Colorado Revised Statutes 39-26-102 defines “purchase price” and “sales price” to broadly encompass charges for transportation, shipping, postage, handling, crating, and packing when they are part of the sale.

If the delivery service is optional and separable from the sale of the tangible personal property—meaning the customer could acquire the item without incurring the delivery charge, such as by picking it up—and the charge is separately stated on the invoice, it may not be subject to sales tax. Conversely, if the sales agreement necessitates delivery to complete the transaction, the delivery charge is considered part of the taxable purchase price. Businesses must assess whether delivery is a mandatory component of the sale or an optional service offered to the customer.

Delivery Charges for Non-Taxable Sales

Delivery charges are not subject to sales tax when the item or service being delivered is itself exempt from Colorado sales tax. For example, if a business sells a service that is not subject to sales tax, the associated delivery charge for that service would also not be taxable.

Colorado exempts various items and services from sales tax. Common exemptions include food for home consumption, certain prescription drugs and medical devices, and specific types of services like professional labor unless explicitly taxed by law. If a transaction involves only exempt tangible personal property or a non-taxable service, then the delivery fee for that transaction also remains non-taxable.

Important Considerations for Businesses

Businesses operating in Colorado must maintain accurate records to differentiate between taxable and non-taxable delivery charges. This is particularly important when a single shipment contains both taxable and non-taxable items, requiring careful allocation of delivery fees. Proper documentation helps ensure compliance and facilitates accurate reporting of sales tax liabilities.

Businesses should also be aware of the separate Retail Delivery Fee (RDF) imposed in Colorado, which is distinct from sales tax on shipping charges. This fee applies to deliveries by motor vehicle containing at least one item of tangible personal property subject to state sales or use tax. While not a sales tax, the RDF is an additional charge that retailers must collect and remit, and its applicability depends on the taxability of the delivered goods.

Businesses should consult official guidance from the Colorado Department of Revenue for the most current and detailed information on these obligations. Retailers are ultimately responsible for collecting and remitting the correct sales tax and any applicable fees.