Is the delivery fee a retailer charges to bring a product to the customer subject to Colorado sales tax, if the customer could instead choose to pick the item up?
Plain-English summary
A national online seller of used cars asked the Department whether the delivery fee it charges to bring a vehicle to the customer's chosen location is subject to sales or use tax. The Department's answer: no — that delivery fee is not subject to state sales or use tax.
The company actually charged two different transportation fees, and the difference between them is the whole lesson:
- A Shipping Fee to move the vehicle from a distant inspection center to the nearest Colorado delivery hub or pickup location. This fee is not optional — the customer can't avoid it — and the company treated it as taxable.
- A Delivery Fee to take the vehicle the last leg, from the Colorado location to the customer's address. This one is optional: the customer can instead pick the vehicle up, and many do. It's also listed as its own line on the purchase agreement, and the customer can change between delivery and pickup right up to the delivery date.
Colorado taxes retail sales of tangible personal property but generally doesn't tax services unless they're specifically listed or bundled inseparably into a taxable sale. Transportation of goods between seller and buyer is a non-taxable service when it is both separable from the sale and separately stated on a written invoice or contract. The Department found the Delivery Fee met both tests: it was separable because the delivery happens after the vehicle is offered for sale and the customer can choose the seller's delivery or their own alternative (pickup), and it was separately stated as its own line on the retail purchase agreement. So the Delivery Fee is not taxed.
The implicit contrast with the mandatory Shipping Fee is the practical takeaway: an optional, separately stated delivery charge is a non-taxable service, while a transportation charge the buyer cannot avoid doesn't clear the "separable" test and is generally taxable.
What this means for you
Retailers that deliver
If you want a delivery charge to stay outside Colorado sales tax, structure it so it is genuinely optional (the customer can decline delivery and pick up, or use their own carrier) and list it as its own line on the invoice or contract. Bake it into the price, or make it unavoidable, and it likely becomes part of the taxable sale. Note this turns on the customer's real ability to choose — not just on labeling something a "delivery fee."
E-commerce and multi-location sellers
Distinguish the leg that simply gets your product to a saleable location (often mandatory, and taxable) from the optional last-mile delivery the customer elects (separable, and non-taxable when separately stated). Two transportation charges on one order can be taxed differently for exactly this reason.
Accountants and tax professionals
The controlling authority is 1 CCR 201-5, Special Rule 18 and the separability analysis from A.D. Store Co. v. Executive Director, 19 P.3d 680 (Colo. 2001). A charge is "separable" when the service's nature is the same whether contracted at purchase or later, and the buyer can opt for the seller's transportation or an alternative; it's "separately stated" when itemized on a written sales document. Both must be satisfied.
Common questions
Q: Are delivery charges taxable in Colorado?
A: Not when the delivery is a separable service that is separately stated on the sales document. Delivery is "separable" when it happens after the goods are offered for sale and the customer can choose delivery or an alternative like pickup.
Q: What makes a delivery fee non-taxable here?
A: Two things together: it was optional (the customer could waive it and pick up the vehicle), and it was separately stated as its own line on the written retail purchase agreement.
Q: Why was the company's "shipping fee" treated as taxable but the "delivery fee" not?
A: The shipping fee (moving the vehicle to the nearest Colorado location) was not optional, so it wasn't separable from the sale. The delivery fee (the last leg to the customer) was optional and separately stated, so it qualified as a non-taxable service.
Q: If I just label a charge "delivery," is it automatically tax-free?
A: No. The label isn't what matters. The charge must actually be separable (the customer can realistically decline it or use another option) and be separately stated. A mandatory charge generally remains part of the taxable sale.
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 and may tax delivery differently — check with each city.
Citations and references
Statutes and rules:
- § 39-26-104(1), 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 201-4, Rule 39-26-102(7)(a) (definition of purchase price)
- 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) (separability of services from a taxable sale)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: PLR-23-007.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 23-007
November 29, 2023
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Via Electronic Mail: XXXXXXXXX
Re: Taxability of Delivery Fee
Dear XXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXX (the “Company”), to the
Colorado Department of Revenue (the “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 Company’s "XXXXXXXXX” fee (“Delivery Fee”) is subject to state sales or use tax.
Conclusion
Company’s Delivery Fee is not subject to state sales or use tax.
Background1
Company is a national retail seller of used motor vehicles. Sales are made via Company's website.
Prospective customers can perform research to identify a vehicle of interest, visually inspect the vehicle,
obtain financing and warranty coverage, purchase the vehicle, and schedule a time and location for
delivery or pick-up of the vehicle.
Company holds its vehicle inventory at various inspection centers across the United States. XXXXXXXX.
In order for a vehicle to arrive at a delivery hub or pick-up location, Company will ship the vehicle from an
inspection center to the nearest delivery hub or pick-up location after the customer purchases the car
online. XXXXXXXXX.
When purchasing a vehicle, a customer may be charged for two distinct transportation related fees. The
shipping fee, which is listed as "XXXXXXXXX" on the retail purchase agreement (“Shipping Fee”), is
charged for transporting the vehicle from an inspection center to the nearest delivery hub or pick-up
location in relation to the customer and is not optional. The Delivery Fee, which is listed as
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 24-35103.5(5), C.R.S. The terms used in this section to describe the factual background are generally those of the requester.
PLR 23-007
November 29, 2023
Page 2
"XXXXXXXXX" on the retail purchase agreement, is incurred for delivering the vehicle from a Colorado
delivery location to the customer's location of choice. The customer has the option to waive the Delivery
Fee and instead pick up their vehicle at any of Company's pick-up locations. In fact, many customers do
opt to pick up their vehicles.
XXXXXXXXX.
The website will list any Shipping Fee that will be included on the retail purchase agreement. This fee is
based on the distance from the inspection center to the local market (delivery hub or pickup location).
XXXXXXXXX. The customer does not have control over this fee. Company treats the Shipping Fee as
taxable.
Once a vehicle is chosen, the customer is prompted to begin the purchase process by entering their
personal details, followed by trade-in information, if applicable, then their cash or financing option. Once
this is completed, the customer then decides if they want to pick up their vehicle or have it delivered. If the
customer chooses delivery, the Delivery Fee is added to the purchase and will be displayed separately on
the retail purchase agreement. XXXXXXXXX.
The separately stated price of the vehicle has no bearing on what Company charges for either the
Shipping Fee or Delivery Fee, and neither of these fees is calculated based on insurance. The Delivery
Fee is added on at the end of the customer's purchase and has no relation to the Shipping Fee
XXXXXXXXX. The Shipping Fee and Delivery Fee are always represented as two different line items on
the retail purchase agreement.
XXXXXXXXX.
Lastly, Company gives customers the choice to modify their optional delivery up to the point of delivery.
For example, if a customer decides to pick-up the vehicle rather than have it delivered a day before their
scheduled delivery date, Company will roll-back their purchase agreement, remove the Delivery Fee from
the retail purchase agreement and allow the customer to have the pickup experience. If a vehicle with a
Shipping Fee was chosen, that fee will remain on their retail purchase agreement. A customer can
change their delivery or pick-up option or reschedule delivery or pick-up at any time.
Discussion
Colorado imposes a sales tax on retail sales of tangible personal property. 2 Colorado does not generally
impose a sales tax on services, except for certain services specifically included in statute.3 However,
services that are otherwise excluded from sales tax may be taxable if they are provided as part of a mixed
transaction that also includes the sale of tangible personal property or taxable services. 4
The transportation of tangible personal property between a retailer and purchaser is generally a service
not subject to sales tax if the service is separable from the sales transaction and the charge for the
service is stated separately on a written invoice or contract.5 A service is 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.6 In particular, charges
for transportation services are separable from the sales transaction if the services are performed after the
taxable property or service is offered for sale, and the seller allows the purchaser the option to use either
the seller’s transportation services or alternative transportation services. 7 Charges for transportation
2
Section 39-26-104(1), C.R.S.
A.D. Store Co., Inc. v. Executive Dir. of Dept. of Rev., 19 P.3d 680 (Colo. 2001)
See 1 CCR 201-4, Rule 39-26-102(7)(a); 1 CCR 201-4, Rule 39-26-102(12); A.D. Store, 19 P.3d at 683–84.
5
Paragraph (1) of 1 CCR 201-5, Special Rule 18.
6
A.D. Store, 19 P.3d at 684. See also paragraph (1)(b) of 1 CCR 201-5, Special Rule 18.
7
Paragraph (1)(b) of 1 CCR 201-5, Special Rule 18.
3
4
PLR 23-007
November 29, 2023
Page 3
services are “separately stated” if they are listed separately in a written sales contract, retailer's invoice,
or other written document issued in connection with the sale. 8
Company makes retail sales of motor vehicles via Company’s website. A purchaser obtains the motor
vehicle from Company by either picking up the motor vehicle at one of Company’s locations or by
requesting delivery of the motor vehicle to the purchaser’s location. If the purchaser chooses delivery of
the motor vehicle to the purchaser’s location, Company charges a Delivery Fee.
First, Company’s Delivery Fee is separable from the sale of the motor vehicle because the attendant
delivery is performed after the taxable property is offered for sale and the delivery is optional. Second,
Company’s Delivery Fee is separately stated because it is set forth separately in the written retail
purchase agreement issued in connection with the motor vehicle sale. Because the delivery service is
separable and the charge for the delivery service is separately stated, Company’s Delivery Fee 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 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.
8
Paragraph (1)(c) of 1 CCR 201-5, Special Rule 18; Paragraph (1)(c)(i)(C) of 1 CCR 201-4, Rule 39-26-102(1.3).