A Hawaii retail delivery fee for safety

Colorado and Minnesota each adopted a retail delivery fee to raise money for transportation projects and roads. A similar retail delivery fee has been proposed in Hawaii to better protect families and students from “the increasing risk of delivery vehicles.” Revenue generated by the fee would fund a Hawaii Safe Routes to School Program.

Hawaii Senate Bill 1124 would place a 50-cent delivery safety fee on retail deliveries in the Aloha State. The bill defines “retail delivery” as a delivery to a person in Hawaii of the following items:

• Taxable tangible personal property
• Clothing

It’s a bit curious that SB 1124 singles out clothing because clothing is tangible personal property and it’s taxable in Hawaii. You’d think the first bullet point would cover it.

It’s possible the bill’s author used the Minnesota retail delivery fee law as a model. Minnesota specifies that clothing is subject to the fee, but does so because clothing is exempt from Minnesota sales tax. Minnesota’s fee otherwise applies to most (but not all) taxable tangible personal property.

In any event, the Hawaii delivery safety fee would apply to taxable tangible personal property and clothing purchased at retail for consumption or use by the purchaser. Clothing and other tangible personal property purchased for resale would not be subject to the Hawaii retail delivery fee despite the fact that Hawaii taxes wholesale transactions.  

As with the Colorado retail delivery fee, the Minnesota retail delivery fee, and a retail delivery fee currently under consideration in Maryland, the Hawaii retail delivery fee would:

• Apply once per transaction regardless of how many deliveries are ultimately involved
• Not apply to items the consumer picks up at the retailer’s place of business (e.g., curbside delivery)
• Not be refundable unless the consumer, retailer, or delivery provider cancels the delivery before it takes place

Retailers would be allowed but not required to collect the Hawaii delivery safety fee from their customers. Those passing the fee on to consumers would need to separately state it as “retail delivery fee” on the invoice, receipt, or other bill of sale. The fee would not be subject to general excise tax (GET), Hawaii’s version of a sales tax.

The use of the term “retailer” is another indication that the bill’s author may have used the Minnesota retail delivery fee law as an example, notes Scott Peterson, VP of Government Relations at Avalara. “Hawaii’s general excise tax law doesn’t define ‘retailer’ — it uses ‘person’ and ‘taxpayer’ instead.”

Retail deliveries of food for home consumption (food and food ingredients) and prepared food and beverages would be exempt from the Hawaii delivery safety fee. This exemption would apply whether the retail delivery is made by the food and beverage seller or a third-party delivery service provider.

The Hawaii retail delivery legislation doesn’t exclude any other retailers from the fee.

Per SB 1124, a “retailer” subject to the fee includes:

• Retailers maintaining a place of business in Hawaii
• Retailers not maintaining a place of business in Hawaii
• Marketplace facilitators maintaining a place of business in Hawaii
• Marketplace facilitators not maintaining a place of business in Hawaii

The legislation doesn’t say anything about nexus, so it seems that any out-of-state retailer or marketplace would be subject to the fee, including those not required to collect and remit Hawaii GET.  

Under Hawaii’s economic nexus law, a remote retailer or marketplace is subject to GET if, in the current or previous calendar year, it had $100,000 in sales or made 200 or more transactions in the state. Remote retailers and marketplaces that do not meet this economic nexus threshold are not subject to GET so long as they have not established nexus in another manner.

Failing to specify that the retail delivery fee would apply only to remote retailers with nexus could be an oversight. The bill states that retailers “shall collect the fee in the same manner as the tax collected under chapter 237,” which is the GET.

Senate Bill 1124 also states that a retailer using a third-party entity to collect and remit GET may have that third-party entity collect and remit the Hawaii retail delivery fee. That’s a positive.

Like the Colorado retail delivery fee and the Minnesota retail delivery fee, a Hawaii retail delivery fee would complicate compliance for affected retailers and marketplaces. It would also likely increase their costs. 

Businesses would need to update their systems to account for the fee and which transactions are subject to it. Even if they don’t collect the fee from customers, they’d need to ensure they only pay the fee on retail deliveries of sales of taxable tangible personal property (and clothing, of course).

Avalara has helped thousands of businesses comply with the Colorado retail delivery fee and the Minnesota retail delivery fee, which are similar but different from the proposed safety delivery fee in Hawaii. If Maryland, Washington, or any other state adopts a retail delivery fee, we’ll help our customers with those too.

We’ll update this post if Hawaii passes retail delivery fee legislation. It passed the first reading in the Senate so it’s off to a good start.

If you’re interested in learning how Avalara can help you streamline sales tax compliance or help you manage retail delivery fees, check out avalara.com.