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State legislators considering fee on deliveries to fund roads

This article is reprinted with permission from the Washington State Standard, a nonprofit publication covering state government and politics. Find more Washington State Standard coverage here.

A fee tacked onto the delivery of many retail and online purchases could generate millions of dollars a year for maintaining city and county roads in Washington.

State lawmakers now must decide if it’s an option worth pursuing as they, and local government leaders, wrestle with increasing costs of transportation upkeep and decreasing collections from the gas tax — the primary source of money for road work.

“Clearly our cities, our counties and our state have transportation challenges with too many potholes and too much traffic,” said Sen. Marko Liias, D-Edmonds, following Tuesday’s meeting of the Joint Transportation Committee, a bipartisan and bicameral panel that he chairs.

“This is one of a number of things we’re looking at to come up with the resources to make the needed investments,” said Liias, who is also chair of the Senate Transportation Committee.

This graphic from the June 2024 CDM Smith report gives an overview of how retail delivery fees work. (Washington Joint Transportation Committee)

Retail delivery fee

Lawmakers heard details of a city-funded analysis of benefits and challenges of imposing a fee on delivery of taxable retail items by motor vehicles.  The “retail delivery fee” could apply to packages dropped off by Amazon, or consumer goods delivered by shippers like UPS.

Prepared by CDM Smith, a consulting and engineering firm, the report delved into potential impacts on consumers and businesses and provided estimates of how much money might be generated under different scenarios. It also looked at what’s happened in Colorado and Minnesota, the only two states with a retail delivery fee.

The study is not a policy proposal and is only intended to provide lawmakers with a baseline of information, said Andrew McLean of CDM Smith, who presented the findings.

It’s a pretty straightforward process as shown in the study. A consumer makes a retail purchase online that will be delivered by a vehicle. Retailers collect the fee as part of the purchase and hand it over it to the state. It would be up to lawmakers to decide how to spend those dollars.

Colorado, which enacted its fee in 2022, charges 28 cents on every delivery regardless of value. It generated $75.9 million in its first year for local and state uses, and clean transportation priorities, McLean said. Businesses with $500,000 or less in sales are exempt.

Minnesota enacted its fee in 2023 and it will be levied starting this July. The state will charge 50 cents only on deliveries of $100 or more. It will raise an estimated $59 million for cities and towns. The state exempts businesses with $1 million or less in annual sales.

How much revenue?

For Washington, the consultants created a way to evaluate the potential revenue from fees ranging from a quarter to 75 cents. On Tuesday, McLean shared four that assumed a 30-cent fee and steady increases of e-commerce spending, which have trended upward in recent years.

When imposed on any order of taxable items and without any exemptions for retailers, it would generate as much as $112 million in 2026 and $160 million by 2030. If the fee is imposed only on deliveries of purchases exceeding $75 and retailers with less than $1 million in sales are exempt, the potential revenue drops to $49 million in 2026 and $70 million in 2030.

Lawmakers had questions on the administration and collection of the fee. They also made clear they would not want fees imposed on delivery of nontaxable items such as food and medical products.

Rep. Jim Walsh, R-Aberdeen, voiced concern it would have a disproportionate impact on lower-income individuals.

“I am concerned that this falls into that category of being regressive,” he said. “Does the study consider how to mitigate against the regressive nature of what in many ways will act like a sales tax?”

McLean said it was not part of the analysis.

Unknown if ’25 Legislature will pursue idea

A coalition of opponents – including the Association of Washington Business and Washington Retail Association – cite the issue in comments included as an appendix to the report.

“The doorstep tax is a double tax on top of one of the most regressive and highest sales taxes in the country,” they wrote. “While we acknowledge the need for innovative solutions to address environmental and budget challenges, taxing deliveries is not the answer.”

Liias said “it’s too early to tell” whether this idea will be pursued in the 2025 legislative session.

“This is the start of a conversation,” he said Tuesday. “This is not a done deal.”