WA considering delivery fee for online orders

(The Center Square) – Washington lawmakers are exploring a potential retail delivery fee for online purchases.

The fee could generate millions of dollars every year and be spent on road maintenance and transportation projects. The retail delivery fee, or RDF, could apply to packages delivered by Amazon, or shipping companies like UPS and FedEx.

In 2023, the Washington State Legislature enacted House Bill 1125, which included a budget proviso for a study on how a retail delivery fee could be implemented in Washington. Transportation leaders were updated on the potential fee, as gas tax revenue continues to decline, during Tuesday's meeting of the Joint Transportation Committee.

A study presented to lawmakers at the committee meeting detailed the benefits and challenges of implementing the proposed fee.  

Sen. Marko Liias, D-Edmonds, who chairs the committee, said no decisions have been made.

“This is one of a number of things we’re looking at to come up with the resources to make needed investments," he explained. 

Andrew McLean with CDM Smith, a consulting firm, prepared the report and gave a presentation to lawmakers on various scenarios for a potential RDF.

“This study is not a policy proposal and is only intended to inform potential consideration,” McLean said. “An RDF is a fee imposed on the delivery of retail items delivered by motor vehicles in Washington state.”

McLean provided details on how the fee has worked in Colorado and Minnesota, the only two states with such a fee.

As of 2022, Colorado charges 28 cents on every delivery regardless of the value of the purchased items.

“It generated $75.9 million in its first year,” McLean said.

Colorado later amended the law to exempt businesses that generate less than $500 million a year.

Tony Gagliardi, Colorado director for the National Federation of Independent Business, told The Center Square the RDF has been incredibly burdensome for small business owners. 

"Poor small business owners, they do everything and now they are saddled with having to collect a 29-cent retail delivery fee," Gagliardi lamented. "When I get my Amazon statement, and I see that 29 cents in there, I laugh. It costs more to collect that fee than they'll generate."

"It's just something else added on top they have to contend with," he added. "It's just another burdensome process added to the backs of small business owners."

Minnesota’s fee, adopted in 2023 establishes a 50-cent fee on purchases over $100 made for delivery within the state. The fee exempts businesses with annual retail sales of less than $1,000,000. It takes effect July 1.

Why study a retail delivery fee?

“Because e-commerce is growing,” said McLean, who showed lawmakers a chart that details who is spending on retail delivery.

“E-commerce spending in urban areas was $365 greater per person in 2019 compared to rural areas,” he said. “That gap in spending increased to $586 in 2023.”

Another factor at play is the fact that gas tax revenue is not coming in at a high enough rate to keep up with transportation costs affected by inflation.

A January 2023 report from the Washington State Transportation Commission projected a $600 million decline in taxation related to road usage over the next 28 years.

Washington commuters already pay the fifth highest fuel taxes in the nation at 49.4 cents per gallon.

The Association of Washington Business and the Washington Retail Association oppose the idea of an RDF. Their comments and concerns were included in a letter at the end of the report.

“We want to express deep concerns regarding any proposal for a tax on deliveries or 'Doorstep Tax' and its potential negative economic impacts," the letter said. "Such a tax would have far-reaching consequences that outweigh any potential benefits.”

The Washington Hospitality Association and the Washington Trucking Associations also signed onto the opposition letter, which continues, “Imposing a tax on deliveries would lead to an increase in the cost of goods and services for consumers. Delivery companies would likely pass on the additional costs to their customers, resulting in higher prices for products ordered online. This, in turn, will reduce consumer spending power, dampen demand, and have a ripple effect across the economy.”

According to the study presented to lawmakers, a fee in Washington of 30 cents per order could generate between $45 million and $112 million in revenue in 2026, growing to between $59 million and $160 million by 2030.