Taxes on nontraditional things

No matter what the economy is doing at a given moment — contracting, growing, or simply chugging along — governments need money to operate. Increasingly, they’re seeking money from less traditional areas, such as bag fees. This can create an additional burden for retailers.

Dr. Lindsey Piegza, chief economist at Stifel Financial, finds that more governments are implementing ecommerce, internet, and environmentally based taxes. “This is one shift that I expect to continue in the tax space,” she explained during the Avalara CRUSH Global virtual conference in May 2022. “The focus has really been on waste management, carbon emissions, these different areas. But I think this is going to expand.”

It certainly seems that way.

California is leading the charge, especially with taxes and fees on products or activities that can damage or threaten the environment. It currently levies more than a dozen special taxes and fees, including:

• Energy resources surcharge
• Integrated waste management fee
• Fire prevention fee
• Marine invasive species fee
• Occupational lead poisoning prevention fee
• Oil spill response, prevention, and administration fees
• Timber yield tax

But California isn’t alone. Keep reading to learn about other fees collected by other states, and their potential impact on compliance.

A new retail delivery fee will take effect in Colorado on July 1, 2022. The 27-cent fee will apply to all sales of tangible property that are subject to the state sales tax and delivered by motor vehicle to a Colorado address, including direct shipments of wine. The fee will certainly impact internet and mail-order sales, and will also affect some brick-and-mortar sales (e.g., a delivery of a sofa selected at a furniture store).

Retailers must separately state the retail delivery fee on all customer invoices and receipts, and remit collected retail delivery fees following the same schedule as their sales and use tax. Zero returns are required, meaning retailers must remit a retail delivery fee return even if no deliveries were made and there’s no retail delivery fee to report. 

California’s covered electronic waste recycling fee (eWaste fee) applies to any new or refurbished electronic device containing a video display measuring more than four inches diagonally that’s identified as a “covered electronic device,” or CED. Rates for the eWaste fee are currently $4, $5, or $6, depending on the size of the screen. The fee is collected by the retailer at the time of purchase.

Numerous states have e-waste laws and some impose registration requirements or fees on CED manufacturers. Extending such fees to retailers or consumers, as California has done, is still somewhat uncommon. For now, at least.

There’s been a state battery fee and a manufacturer battery fee in California since April 1, 2017. It applies to batteries primarily composed of both lead and sulfuric acid that weigh over 5 kilograms and have a capacity of 6 volts or more — batteries typically designed for use in aircraft, equipment, vehicles, and watercraft. The rate for both the state and manufacturer battery fees increased from $1 to $2 on April 1, 2022.

Other states with a lead-acid battery fee include:

• Florida
• Missouri
• South Carolina
• Texas

A growing number of states now impose a statewide fee on certain single-use disposable bags to discourage their use. These include:

• California: A minimum of 10-cent fee per bag; local laws may require a retailer to charge customers an additional fee
• Colorado: A 10-cent fee per recycled plastic or paper bag (unless higher fees are imposed at the local level) from January 1, 2023, through December 31, 2023; starting January 1, 2024, stores may not provide a plastic bag to customers and the fee for a paper bag furnished to customers will remain 10 cents per bag unless local fees also apply
• Connecticut: A 10-cent fee on single-use plastic bags sunset effective June 30, 2021; single-use plastic bags are now banned
• Delaware: Retail stores may charge a fee for the reusable bags they provide on and after July 1, 2022, when a plastic carryout ban takes effect, but they’re not required to do so
• District of Columbia: A 5-cent fee per carryout paper or plastic disposable bag
• Hawaii: Businesses must charge the customer a minimum of 15 cents per recyclable paper bag or reusable plastic bag provided at the point of sale
• Maine: A 5-cent fee per carryout bag made of recycled paper or any reusable carryout bag made of plastic
• Oregon: Retailers must charge a minimum of 5 cents per paper or reusable bag
• Washington: A fee of 8 cents per bag provided or sold through December 31, 2025; the fee for reusable carryout bags made of film plastic increases to 12 cents per bag on January 1, 2026; the fee must be separately stated on customer receipts, and businesses must treat the bag fee as a retail sale that is subject to sales tax, “even if all of the goods being purchased are exempt from sales tax”
• Vermont: Plastic bag ban; a 10-cent fee per paper bag

Many local governments have banned the provision of plastic bags locally and/or implemented local plastic bag fees, in addition to or in lieu of statewide bans or fees. States where local bans or fees are permitted include California, Illinois, Maine, Maryland, and South Carolina. Virginia has no statewide fee but any city or county may impose a 5-cent tax on each disposable plastic bag.

This being America, more than a dozen states have passed laws prohibiting local bag bans or fees, including Arizona, Florida, Idaho, Missouri, and Texas.

Several states have statewide fees on waste disposal. For example, Mississippi has fees on both nonhazardous waste disposal ($1 per ton) and hazardous waste disposal ($1–$10 per ton, depending on the circumstances).

North Carolina has a solid waste disposal tax, with a rate of $2 per ton. Before collecting and remitting the tax, a business must first submit a completed Registration Application for Solid Waste Disposal Tax, Form NC-SWR, by mail to the North Carolina Department of Revenue.

Washington imposes a refuse tax (aka a solid waste collection tax) on the collection, transfer, storage, or disposal of solid waste. Though a tax on the consumer, the service provider is responsible for collecting it and remitting it to the Washington State Department of Revenue. 

For affected retailers, the fees and taxes listed above add a layer of complexity to compliance. Businesses usually need to register for the applicable fees, though in the case of Colorado’s new retail delivery fee, the state will automatically register many retailers. The fees need to be collected, remitted, and reported, often on a separate return. And they may or may not be subject to sales tax.

Retailers in Florida aren’t required to separately list the lead-acid battery fee on invoices. If the fee is separately stated, it must be included in the amount subject to sales tax (as it would be if not stated separately). Florida sales tax also applies to the state’s new tire fee, which must be separately stated on sales invoices.

In Texas, sellers are required to separately state the battery sales fee, but sales tax isn’t  due on the fee. Sales tax doesn’t apply to California’s bag tax, either.

States often allow retailers to retain a certain amount of the taxes and fees they collect, to help offset the cost of compliance. For example, Missouri retailers that collect the state’s tire and lead-acid battery fee are granted a 6% collection reduction. This is a benefit for the businesses, but it’s something else to manage.

If Dr. Piegza is right, we could see more and more varied taxes and fees in the near term. We’ll let you know at Avalara Tax Desk should that come to pass.