This blog was last updated on December 5, 2024
Direct-to-consumer (DtC) alcohol shippers are no strangers to navigating a complex regulatory landscape. However, recently, a new challenge has emerged—the rise of retail delivery fees. From excise taxes to shipping restrictions, the industry has long dealt with a maze of state-specific rules that require careful attention and precise compliance.
Read on to explore how RDFs are affecting DtC alcohol shipping, why more states are likely to adopt them and what strategies businesses can use to stay compliant as this trend continues to grow.
The DtC Shipper’s State-by-State Guide to RDFs
A retail delivery fee (RDF) is exactly what it sounds like—a fee that a state can impose on a retail sale of goods that are delivered to the consumer from a remote business location. RDFs are like other add-on fees including bottle bills and sales taxes in the way that states impose them on various sales. However, there are unique rules on when and how they will apply to a given retail sale.
As of now, only two states—Colorado and Minnesota—have implemented RDFs. While this may initially seem to have a limited impact on the DtC shipping market, there are likely to be widespread implications long-term as other states explore similar measures.
Colorado
The Colorado RDF is currently $0.29 per order, with the rate scheduled to increase annually. Only businesses with a sales tax account in Colorado are obligated to collect the fee. However, Colorado has established a $500,000 annual retail revenue threshold for the RDF, meaning that many businesses—particularly DtC shippers—may not be subject to the fee even if they have a sales tax liability in the state. For those businesses that do meet the threshold, the RDF must be collected on every order shipped to Colorado and remitted separately from other state taxes.
Minnesota
The Minnesota RDF is set at $0.50 per order. The state has a higher threshold of $1 million in annual retail sales before a business becomes liable for the fee. Additionally, the RDF only applies to orders exceeding $100, meaning smaller transactions, such as a pizza delivery, will not incur the fee in Minnesota—unlike in Colorado, where even small orders are subject to the fee.
With the 2025 legislative sessions approaching, it is highly likely that more states will introduce bills related to RDFs. Washington state has commissioned a study to explore the potential implementation of an RDF, and New York has introduced legislation to assess delivery fees, including specific fees for transactions in New York City. Nevada and Ohio have also examined the fee’s feasibility in recent years, although neither state has taken significant action.
Who’s responsible for paying RDFs—the buyer or the seller?
In both Colorado and Minnesota, retailers required to collect the RDF must charge consumers at the time of purchase, much like sales tax. However, as DtC wine shippers know all too well, even fees that can’t be directly assessed—such as excise taxes—are often included in the listed price of goods, ultimately raising the cost for consumers.
Fees vs. tax increases: Why are states implementing RDFs?
In just two years, Colorado has already pulled in over $130 million from adding the delivery fee to retail purchases. While Minnesota’s has not been in effect long enough to generate statistics, it projects to also collect tens of millions in additional revenue per year. With those numbers, it is extremely likely then that more states will follow the established precedent and adopt their own related fees.
The primary reason states are adopting RDFs is simple, as they provide an additional source of revenue. With state budgets under pressure and politicians hesitant to raise taxes directly, this add-on offers a way to generate additional funds without the political fallout of new taxes. By labeling them as “fees” instead of taxes, states can sidestep the need for voter approval, which is required for tax increases in states like Colorado. This distinction makes it easier for lawmakers to implement these fees, even though the cost falls on consumers.
As electric vehicles become more prevalent, gasoline tax revenues are expected to sharply decline. Gas tax receipts peaked at $65 billion in 2020 but are projected to drop to just $20 billion by 2050. To fill this gap, states need to get creative, and RDFs are just one potential solution.
Additionally, RDFs serve another strategic goal: ensuring that companies contributing to the wear and tear on public infrastructure pay their fair share. This is particularly relevant for massive online retailers like Amazon, whose delivery networks place substantial strain on roads. While Amazon is a prime target for these fees, other online retailers and businesses reliant on remote fulfillment are also likely to be affected as these fees gain traction.
RDFs: The next big compliance hurdle for DtC shippers
While implementing RDFs on a state-by-state basis may simplify adoption in the short term, it fragments the regulatory environment, creating a patchwork of liabilities and jurisdictions that businesses must navigate. This increasingly complex system places a heavy burden on online sellers, such as DtC wine shippers, who are tasked with managing these diverse and evolving requirements.
The question is: how can businesses keep up with these variations without losing their minds or risking costly compliance errors? The real advantage comes from building systems that can handle whatever comes next. By engaging with compliance experts, using centralized platforms to track legislative changes and adopting technology to automate the compliance process, alcohol shippers can stay ahead of the curve and mitigate the risk of non-compliance.
