The rise of e-commerce means consumers can now easily compare prices, read reviews and access a global selection of goods. For many Americans, online delivery isn’t a convenience; it’s essential. More consumers could soon see a new fee on their online orders.
Grappling with declining gas tax revenues, some state legislatures are considering plans to tax online deliveries to fill budget gaps. Lawmakers should look hard at new evidence of how delivery taxes can backfire before imposing a burdensome and inefficient tax on consumers and businesses.
The two states that have passed a delivery tax — Colorado and Minnesota — are rife with cautionary tales. After a disastrous initial rollout in 2022, Colorado needed to simplify its law to help small businesses comply. Minnesota businesses and consumers are bracing for effect after the state’s 50-cent tax took effect in July.
However, a new analysis of Colorado’s first-in-the-nation delivery tax shows it’s not the tax’s rollout that didn’t go according to plan. Research by the Chamber of Progress finds that Colorado’s delivery tax has had a serious cost for workers, consumers and businesses, all to make a negligible dent in the budget deficit.
As a result of the delivery tax law, Colorado consumers could pay as much as 14.7 percent in taxes on a turkey sandwich, factoring in retail delivery fees plus state and local sales tax. That’s more than the federal tax on cigarettes. While some high-income Coloradans can afford the new delivery tax, low-income families will definitely feel the pinch.
In fact, the financial burden of retail delivery fees is 6.5 times higher for households with annual incomes under $25,000 compared to those with annual incomes of $200,000 or more.
With higher taxes, consumers cut back on consumption. This creates a damaging ripple effect across the economy, and small businesses fare the worst when demand falls. Delivery taxes would make it harder for small online businesses to compete by incentivizing consumers to shop at brick-and-mortar stores.
Coloradans paid $89 million in retail delivery fees in 2023. If households had used that money as they wanted, their spending would have supported 712 additional jobs and $35.2 million in wages across Colorado’s economy.
Colorado’s delivery tax has already cost the state hundreds of local jobs. Research indicates that restaurants lost $12.2 million in takeout orders in 2023. With fewer orders, the state workforce loses 234 restaurant workers — before we factor in the effect on delivery drivers.
The hit to sales, jobs and wages creates even more negative spillover effects on the broader economy and surrounding communities. Incorporating these indirect effects, Colorado’s tax on food deliveries alone will cost the state $26.9 million annually.
After seeing how delivery taxes have played out in Colorado, it’s puzzling to see state legislators discussing retail delivery fee systems for their states. While state governments frame these taxes as a much-needed source of income, they cover only a tiny fraction of budget shortfalls with negative side effects.
Lawmakers should also consider that online delivery taxes disproportionately affect vulnerable populations — disabled and elderly — and increase emissions by bringing more cars on the road. Delivery taxes are inherently regressive, so they’ve sparked criticism from leading progressive lawmakers.
New York Democrats scrapped a plan to include a delivery tax in the Assembly’s proposed budget for 2023. And in Maryland, legislators also abandoned a proposed 50-cent delivery tax following backlash from voters who overwhelmingly opposed the fee.
For a growing number of Americans, deliveries are not a luxury — they are a necessity. Instead of hurting the people who can least afford it with a regressive new tax, states should look elsewhere for sustainable solutions to address budget shortfalls.
