Is a subscription or membership fee whose main benefit is free delivery on future orders subject to Colorado sales or use tax?

Plain-English summary

An online marketplace — the kind that connects shoppers with third-party retailers and delivery couriers — asked the Department whether its subscription membership fee is subject to sales or use tax. The membership works like familiar delivery passes: for a flat monthly or annual fee, members get unlimited free delivery on qualifying orders, plus smaller perks (reduced service fees, no busy-pricing surcharge, some pickup credit). Shoppers don't need the membership to buy — it's optional. The Department's answer: the membership fee is not subject to state sales or use tax.

The reasoning tracks Colorado's treatment of delivery as a service. Colorado taxes retail sales of tangible personal property but generally doesn't tax services, and transportation/delivery isn't on the list of taxed services. A delivery charge is non-taxable when it's separable from the sale of goods and separately stated. The Department treated the membership as essentially prepaying for delivery service: the primary benefit is free deliveries, and the delivery service itself "functionally remains the same" for members and non-members — the only real difference is when and how the customer pays for it.

Because the membership is optional (not required to shop), can be bought at the time of an order or any later time, and is billed separately on a monthly or annual basis, it satisfies both the separable and separately stated tests. So the recurring membership fee is a non-taxable service charge — even though members use it to get goods that are themselves taxable.

This is a close cousin of the Department's delivery-fee analysis: what matters is that the charge is for an optional, separately invoiced transportation service, not for the goods. Bundling a membership inseparably into the price of goods, or making it mandatory, could change the result.

What this means for you

Subscription and membership businesses

If your subscription's core benefit is a non-taxable service (here, delivery), and the subscription is optional and billed separately from any goods, Colorado's reasoning supports treating the fee as a non-taxable service. The keys are that customers can transact without the membership and that the membership is invoiced on its own. The more a membership's primary value is a taxable item (rather than a service), the more scrutiny it deserves.

Marketplaces and delivery platforms

A flat-fee "free delivery" membership is, in substance, prepaid delivery. Structured as an optional, separately stated subscription, it isn't subject to state sales or use tax — consistent with how Colorado treats per-order delivery fees. Keep the membership genuinely optional and separately billed.

Accountants and tax professionals

The analysis applies the same 1 CCR 201-5, Special Rule 18 separability framework used for per-order delivery charges, plus the service/non-service line from A.D. Store Co. v. Executive Director, 19 P.3d 680 (Colo. 2001). The Department's emphasis on the membership's primary benefit (delivery) and that the underlying service is unchanged for subscribers is the analytical hinge. Watch for memberships whose primary benefit is access to taxable property rather than a service.

Common questions

Q: Is a delivery-subscription fee taxable in Colorado?
A: Under this ruling, no. A subscription whose primary benefit is free delivery is treated as a non-taxable transportation service, as long as it's separable from the sale of goods and separately stated.

Q: Why isn't it taxed when the goods I order are taxable?
A: The membership fee pays for delivery, which Colorado doesn't tax, not for the goods. The goods remain taxable on their own; the separate, optional membership fee does not become taxable just because members buy taxable items.

Q: What features made this membership non-taxable?
A: It was optional (not required to shop), could be purchased at the time of an order or later, and was billed separately on a monthly or annual basis — meeting the "separable" and "separately stated" tests for transportation services.

Q: Would a mandatory or bundled membership be treated the same way?
A: Not necessarily. The ruling rests on the membership being optional and separately stated. A fee baked inseparably into the price of goods, or one whose primary benefit is taxable property, could be analyzed differently.

Q: Can I rely on this ruling for my own business?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else. It shows the Department's reasoning, but your facts may differ.

Q: Does this cover home-rule city taxes?
A: No. The Department administers state and state-administered local sales and use taxes only. Self-collected home-rule cities set their own rules — check with each city.

Citations and references

Statutes and rules:
- § 39-26-104(1)(a), C.R.S. (sales tax on retail sales of tangible personal property)
- 1 CCR 201-5, Special Rule 18 (transportation/delivery charges; the "separable" and "separately stated" tests)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)

Case law referenced in the ruling:
- A.D. Store Co., Inc. v. Executive Director, Department of Revenue, 19 P.3d 680 (Colo. 2001) (services are generally not taxed; separability of services from a taxable sale)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: PLR-23-006.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

PLR 23-006
December 1, 2023
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Via Electronic Mail: XXXXXXXXXXXXX
Re: Sales or Use Taxation of Subscription-based Membership
Dear XXXXXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXX (“Company”),
regarding the sales or use taxation of subscription-based membership, to the Colorado
Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 24-35-103.5. This letter
is the Department’s private letter ruling. This ruling is binding on the Department to the extent
set forth in 1 CCR 201-1, Rule 24-35-103.5. It cannot be relied upon by any taxpayer other than
the taxpayer to whom the ruling is made.
Issue
Whether the fee that Company charges for a subscription-based membership, the primary
benefit of which is to provide the purchaser with free delivery on future orders that meet specific
conditions, is subject to state sales or use tax.
Conclusion
No, the fee that Company charges for a subscription-based membership, the primary benefit of
which is to provide the purchaser with free delivery on future orders that meet specific
conditions, is not subject to state sales or use tax.
Background1
Company operates an online marketplace that connects purchasers with third-party retailers
that sell goods (“Retailers”) and independent third parties that provide delivery and related
services (“Couriers”). Company also processes the payment for the transactions associated with

1 Paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5 requires the request for a private letter ruling to include a

statement of facts. This section generally recites the statement of facts provided in the request, which is not an
indication that the Department found such facts relevant to its analysis. Some relevant facts may be omitted to ensure
confidentiality as required by section 24-35-103.5(5), C.R.S. The terms used in this section to describe the factual
background are generally those of the requester.

PLR 23-006
December 1, 2023
Page 2
these orders. Company’s marketplace can be accessed through its website or through its app
(together “Marketplace”). Company is headquartered and incorporated outside the state.
As part of the operation of its online marketplace, Company enters into agreements with
retailers in Colorado and throughout the United States to allow retailers to list their products for
sale to purchasers on its Marketplace. Purchasers can browse Company’s online Marketplace
for products available for sale by retailers and can select items to purchase from Retailers that
will be picked, packed, and delivered by third-party Couriers.
Company charges purchasers who buy items on the Marketplace a delivery fee for the delivery
by couriers of any goods and for any related services (“Delivery Fee”). The Delivery Fee is
charged to the purchaser as a separately stated fee that can vary based on order price and time
of delivery.
In addition to the Delivery Fee, Company charges purchasers a separately stated service fee
(“Service Fee”) for the fulfilling and handling of the order and a busy pricing fee during peak
delivery hours (“Busy Pricing Fee”). The Service Fee is treated as a handling fee because it
covers the cost of fulfilling the purchaser's order.
In lieu of delivery, purchasers may also make purchases on the Company’s Marketplace and
select a pick-up option for many Retailers. In these cases, Company may charge a small pickup fee for the ordered items to be picked and packed for the purchaser. The Company’s website
specifically states that there are pick-up options for purchasers.
Purchasers also have the option to sign up for an annual or monthly delivery Membership
whereby purchasers are charged a one-time annual ($XX.XX) or monthly ($X.XX) flat fee in
exchange for unlimited delivery of goods purchased from retailers through the marketplace
(“Membership”). Purchasers do not need a Membership to shop with Company. Membership
purchasers enjoy the following benefits on every order across the United States:
●
●
●
●
●

Unlimited free delivery for all orders above $XX;
5% credit back on eligible pickup orders;
No pickup or Service Fees for pickup orders;
Reduced Service Fees on every order; and
No Busy Pricing Fees during peak delivery hours.

For non-Membership purchasers, Delivery Fees typically start at $X.XX per order. In addition,
Membership purchasers who place an order below $XX are still charged a Delivery Fee.
Discussion
Colorado imposes a sales tax on retail sales of tangible personal property.2 Colorado does not
tax services, except for certain services specifically included in statute.3 Transportation services,
including delivery, are not among the services explicitly subject to tax. Additionally, charges for
2 Section 39-26-104(1)(a), C.R.S
3 A.D. Store Co., Inc. v. Executive Dir. of Dept. of Rev., 19 P.3d 680 (Colo. 2001)

PLR 23-006
December 1, 2023
Page 3

transportation services are not subject to tax if they are separable from the sales transaction
and stated separately on a written invoice or contract.4 Services are generally “separable” when
the nature of the service remains the same whether contracted for at the time of purchase or at
a later date, and when the service can be contracted for at the initial purchase or at a later time.5
Charges for transportation services are separable from the sales transaction if they are
performed after the taxable property is offered for sale and the seller allows the purchaser the
option either to use the seller’s transportation services or use alternative transportation
services.6 Services are “separately stated” if the fees are listed separately in a written sales
contract, retailer's invoice, or other written document issued in connection with the sale.7
Company charges purchasers who buy items on its marketplace several fees, including a
Delivery Fee, a Service Fee, and, on some orders, a Busy Pricing Fee. Company offers an
optional Membership that primarily provides unlimited free deliveries on certain orders and
secondarily reduces the service fee or busy pricing fee. The Membership is not required to shop
with the Company and can be purchased at any time. As stated in the background section, the
primary benefit of the Membership is unlimited free deliveries on certain orders. Company’s
delivery service functionally remains the same for Membership subscribers and non-subscribers
alike, with the time and method in which the delivery services are paid for being the only
substantial difference. Because the nature of the delivery and other services provided in
exchange for the Membership remains the same whether contracted for at the time of purchase
or at a later date and the services can be contracted for at the time of the customer’s initial
purchase or at a later time, and because the Membership is invoiced separately on either a
monthly or yearly basis, the fee for the Membership is both separable and separately stated and
is not subject to state sales or use tax.

Miscellaneous
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts, that all representations are true and complete, and that Company
has otherwise complied with the requirements of section 24-35-103.5, C.R.S., and the rules
promulgated pursuant thereto. The Department reserves the right, among others, to
independently evaluate Company’s facts, representations, and assumptions. The ruling is null
and void if any such fact, representation, or assumption is incorrect and has a material bearing
on the conclusions reached in this ruling. This ruling is binding on the Department and is subject
to modification or revocation, in accordance with 1 CCR 201-1, Rule 24-35-103.5.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by self-collected home-rule cities. You may
wish to consult with those local governments that administer their own sales or use taxes about
the applicability of those taxes. Visit our website at tax.colorado.gov for more information about

4 Paragraph (1) of 1 CCR 201-5, Special Rule 18.
5 A.D. Store Co., Inc. v. Executive Dir. of Dept. of Rev., 19 P.3d 680, 684 (Colo. 2001); see also paragraph (1)(b) of 1

CCR 201-5, Special Rule 18.
6 Paragraph (1)(b) of 1 CCR 201-5, Special Rule 18.
7 Paragraph (1)(c) of 1 CCR 201-5, Special Rule 18.

PLR 23-006
December 1, 2023
Page 4

state and local sales taxes.
Thank you for your request.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom
the ruling is made.