Is a restaurant's separately stated delivery charge taxable when the customer is never told there's a delivery fee they could avoid by picking up the meal?

Plain-English summary

A restaurant lets customers order in person, by phone, or on its website, and charges a fee to deliver the meals. The fee is separately stated on the invoice, but the customer is never told — in writing or orally, at the time of ordering — that there's a delivery charge they could avoid by picking up the meal. The restaurant asked whether that separately stated delivery charge is still taxable.

The Department's answer: yes, it's taxable on these facts.

Colorado generally doesn't tax services, and transportation of property between a retailer and a buyer is a service that isn't taxed — if the charge clears two tests under Special Regulation 18: it must be (1) separable from the sale and (2) separately stated on a written invoice or contract.

• Separable — met. A charge is separable only if the transportation is offered after the property is offered for sale and the buyer has the option to buy the goods without the delivery (e.g., the buyer can use the seller's delivery or their own). Here the restaurant does let customers pick up the meal instead of having it delivered, so the delivery charge is separable — a customer can buy a meal without buying delivery.
• Separately stated — NOT met. Stating the charge on the invoice is not enough by itself. The customer must actually know they are purchasing delivery so they can decide to buy that service. Because this restaurant doesn't disclose the delivery fee at the time the order is taken — the fee shows up only on the invoice after the transaction is complete — the customer never made a decision to purchase the delivery service. (The Department even noted that some competitors selling similar products charge no separate delivery fee, reinforcing that the customer wouldn't expect or knowingly choose it.) So the after-the-fact invoice does not satisfy the "separately stated" requirement.

Both tests must pass; failing the second makes the delivery charge subject to sales tax.

What this means for you

Restaurants and delivery businesses

To keep a delivery charge out of the sales tax base, you need both: a real pickup/self-transport option (separable) and up-front disclosure of the fee when the order is placed, so the customer knowingly chooses delivery (separately stated). Burying the fee on a post-sale invoice — without telling the customer at order time — makes it taxable, even though it's on its own line. Put the delivery charge in front of the customer at the point of order (menu, website checkout, phone quote).

Retailers generally

The two-part SR-18 test applies beyond restaurants. "Separately stated" isn't just a formatting rule — it requires the buyer to have notice and a choice. If your delivery is mandatory-by-surprise, it rides along with the taxable goods.

Accountants and tax professionals

SR-18(b) (separable) and SR-18(c) (separately stated) are conjunctive; Reg. 39-26-102.7(a) keeps separately stated delivery/installation out of the base. The novel point here is that the Department reads "separately stated" to require customer awareness at the time of the sale — an invoice-only disclosure doesn't count because the buyer never elected the service. Cf. TPLR-09-004 on separability.

Common questions

Q: Is a separately stated delivery charge automatically tax-free in Colorado?
A: No. It must be both separable from the sale and separately stated in a way the customer knows about before buying. Putting it only on the after-sale invoice doesn't qualify.

Q: My customers can pick up instead of getting delivery — isn't that enough?
A: That satisfies the "separable" test, but not the "separately stated" test if you don't disclose the fee when the order is placed. You need both.

Q: What makes a delivery charge "separately stated" for this purpose?
A: The customer must actually know they're purchasing delivery and choose it — for example, the fee is shown at order time on the menu, website checkout, or phone quote, not just on the final invoice.

Q: Why does customer awareness matter?
A: Because the exemption is for a service the buyer chooses to purchase. If the buyer doesn't know about the fee until after the sale, they never decided to buy delivery, so it's treated as part of the taxable sale.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no determination on any specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Rules:
- 1 CCR 201-5, Special Regulation 18, "Transportation Charges" — SR-18(b) (separable), SR-18(c) (separately stated)
- 1 CCR 201-4, Department Regulation 39-26-102.7(a) (delivery/installation charges excluded from tax base if separately stated)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Department guidance:
- TPLR-09-004 (a delivery charge is separable if the consumer has the option not to purchase the delivery service)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-15-012.pdf

Original ruling text

Office of Tax Policy, P.O. Box 17087, Denver, CO 80217-0087

GIL-15-012 — April 24, 2015

Re: Delivery Charge

You submitted on behalf of your client (the "Company") a request for guidance to determine whether delivery charges separately stated on the invoice are subject to Colorado sales tax. […] The Department initially treats your request as one of a general information letter.

Issue

Is a separately stated delivery charge subject to Colorado sales tax because the customer is not notified that they could avoid the delivery charge if they pick up the meals at a restaurant location?

Background

Company is restaurant. Customers may order a meal in person at the restaurant, by phone, or on Company's website. Company imposes a charge to deliver the meals to customers. Company's software program calculates the amount due from the customer for the meal(s), delivery charge, and sales tax. The delivery charge is separately stated. A customer is not given written or oral notification that the delivery charge can be avoided if the customer picks up the meals at the restaurant, whether the order is phoned in or placed on Company's website.

Discussion

Colorado generally does not levy sales tax on the sale of services. Transportation of tangible personal property between a retailer and a purchaser is generally considered a service and, thus, is not subject to sales tax. Transportation charges are not taxable if they are both (1) separable from the sales transaction and (2) stated separately on a written invoice or contract. [1 CCR 201-5, Special Regulation 18.]

The charges must be stated separately on a written invoice or contract. [SR 18(c).] Company represents that it separately states the delivery charge on an invoice. However, Company does not advise the customers that there is a delivery charge at the time the order is taken. We note in this regard that some companies selling similar products do not charge a separate delivery fee. Thus, it appears that the customer does not know at the time of the order that there is a delivery fee and, therefore, the customer does not make the decision to purchase the delivery service. [The customer may be making the decision to take advantage of the delivery service, but the customer is not making the decision to purchase the service.] Thus, stating the delivery fee only on the invoice the customer receives after the transaction is complete does not satisfy the "separately stated" requirement.

The second element that must be established is that the fee is separable from the sale of the goods. Stating the charges separately on the invoice does not, by itself, make the delivery charge separable from the sales transaction. The charges must be actually "separable" from the transaction for the sales tax exemption to apply. In order for a charge to be "separable" from the sales transaction, the transportation service must be provided after the taxable property is offered for sale and the purchaser must have the option to purchase the goods without the delivery charge. For example, the delivery charge is separable if the buyer has the option to use either the seller's transportation services or to use its own transportation. [SR 18(b); TPLR-09-004; 1 CCR 201-4 Reg. 39-26-102.7(a).]

It appears in this instance that the delivery charge is separable from the transaction because Company does allow the purchaser the option to pick up the meal directly from Company's location or have Company deliver the meal. That is, the customer can purchase a meal from Company without also being required to have the meal delivered. However, the delivery charge does not meet the separately stated requirement because the customer is not aware that they are purchasing a delivery charge. Thus, the delivery charge is subject to sales tax.

Miscellaneous

This letter represents the good faith opinion of Department personnel who are knowledgeable on state taxes issues. However, the Department does not make a specific determination here on any of the issues raised and the Department is not bound by this general information letter. The Department administers state and state-administered local sales and use taxes; this letter does not address sales and use taxes administered by home-rule cities and home-rule counties.

(Condensed from the official PDF; see the linked source for the complete text and footnotes.)