A quick glance at the popular press will reveal all sorts of headlines detailing the efforts by businesses, governments and individuals alike directed at saving our planet. Whether it be reforestation, water conservation, carbon neutrality, or reducing our dependency on fossil fuels, these activities may seem very far removed from the day-to-day business of your clients. However, one ecologically focused initiative that could be enormously impactful, especially in the retail sector, are new point-of-sale fees. Let’s explore the landscape of point-of-sale fees, their recent proliferation as a means of achieving environmental objectives, and the impact they may have on the businesses charged with their collection and remittance.
Point-of-sale fees are fixed amount or rate-based assessments levied on certain products or services at the time of sale and paid by the final consumer at retail. The funds are then often allocated for specific uses, or in the environmental case, to fund the cost of eventual disposal and recycling. Fees are sometimes applied to urge consumers to “think twice” about certain shopping choices. For instance, Boulder, Colorado has a disposable bag fee program. The program subjects disposable bags provided at retail sale to a small fee to discourage shoppers from taking disposable bags at the checkout counter. The funds are then used to make reusable bags more available within the community. When implemented in 2012, the city saw an immediate 70% reduction in plastic bag use, and also raised around $1,000,000 in funds over the past decade. In fact, across the United States there are over 100 jurisdictions that employ a bag fee program like Boulder.
This use of point-of-sale fees for environmental health doesn’t end with disposable bag fees. There are numerous other programs designed to fund recycling and disposal efforts, such as the Paint Care Fee stewardship for architectural paints, white good fees for appliances, tire fees, carpet fees, mattress fees and bottle fees. All demonstrating fees as becoming a go-to for influencing environmental agendas across the country.
Point-of-sale fees are clearly not a new concept, but recent evidence suggests legislatures are doubling down by expanding the roster of products subject to fees, increasing fee amounts, and enacting new and novel fees. If they are not paying attention, a new fee can definitely sneak up on a retail seller.
For example, Connecticut recently passed legislation updating a nearly 45-year-old bottle deposit program to include seltzers, ciders and noncarbonated drinks. This means that juices and certain coffees are now subject to the fee. The reasoning explained through a 2021 Stake Holder Notice by the Connecticut Department of Energy and Environmental Protection, is that expanded fees are needed to finance modernization and infrastructure efforts, as well as promote an uptick in redemption rates in recyclable solid waste. In Connecticut, bottle redemption rates were hovering at around 50%, and since other states were closer to 90%, it definitely thought it could do better.
California is also proposing changes to its Carpet Stewardship Program. Stewardships are quasi-governmental entities frequently charged by state governments to administer fee programs on their behalf. This particular program requires qualifying carpet retailers to charge consumers a dollar-based fee on each square yard of certain types of carpet to aid in recycling efforts. The new proposal seeks to ensure continued support of carpet recycling in the state by increasing the per square yard fee amount beginning April 1, 2023.
Maryland introduced HB 1089 during the 2023 legislative session to establish a beverage container recycling and a litter reduction program, as well as HB 930 to create a mattress stewardship program. The first proposal, like Connecticut, would form a system to impose a point-of-sale fee on certain beverage containers beginning in January 2025. The latter invites the Maryland Department of Environment to set out a plan for a mattress stewardship by July 2024. Once established, a fee would be charged on each mattress sale. Each bill goes on to provide that the intent of the fees is to fund recycling and other environmental programs.
Finally, the 2021 Colorado legislature created an entirely new type of fee: a retail delivery fee. Its purpose is to encourage the adoption of electric vehicles and mitigate the environmental impact of eCommerce purchases. The fee is $0.27 ($0.28 starting July 2023) imposed on all deliveries by motor vehicles in Colorado with at least one item of taxable tangible personal property in an order. This was groundbreaking to place a fee at the order level and may be the start of a new trend as two states are proposing their own versions of a retail delivery fee. Specifically, the Minnesota and New York legislatures have proposed similar new fees in amounts of $0.40 and $0.25, respectively.
Imperfect track record
With the growth of fee programs, it’s worth taking a moment to understand if these legislative initiatives are particularly successful in meeting their stated objectives. The answer may be clouded.
In 2020, Maine imposed a “pesticide container fee” and two years later repealed the law. The Maine fee was levied on the sale of any pesticide found on a registered list from the Maine Board of Pesticides Control (BPC). Funds were to be used to support education on pesticide safety and researching the impact of pesticide use on the environment. The dilemma was the fee applied to anything from disinfectant wipes, bug sprays, pool care products, to tick repellants, and the BPC list was granular as to the exact products. Consequently, it was unclear whether a product not listed, but similar in nature, was subject to the fee. For instance, antimicrobial products for inanimate objects (e.g., disinfectant wipes) were subject to the fee, but antimicrobial products intended for use on humans (e.g., hand sanitizer) were not. This was a fine line to discern, creating a complex framework for compliance that raised more questions than answers for retailers.
Governments need to understand that point-of-sale fees will ultimately become the responsibility of retail sellers and for a fee program to be successful, sellers should be brought into the process early so as to ensure any fee program that is ultimately created can be easily (and affordably) administered at the retail level. The simpler it is for sellers to come into compliance, the greater likelihood that the objectives of the fee program will be met. Businesses, on the other hand, need to have automated solutions in place that will be able to handle any new fee program that may come along.
Even though point-of-sale fees have proven to be a widely embraced means by state legislatures to drive environmental programs, the ultimate success of these programs falls upon its implementation and administration. Legislatures have been able to offer several creative proposals to impact change but point-of-sale fee expansion may not always be the right answer. Yet, expansion of these point-of-sale fees continues to be the go-to vehicle for states across the country as environmental harms make headlines. As a result, ease of compliance for businesses and consumers alike must also be thoughtfully considered if the expanding use of fees to enable environmental change is here to stay.
Join Sovos and TaxOps for an upcoming webinar on April 12 to ensure your tax strategy lets you account for fees and other nuances.