In an effort to promote the use of reusable bags and reduce plastic waste pollution, Colorado House Bill (H.B.) 21-1162 imposes a 10-cent fee per bag on single-use carryout bags.
Effective January 1, 2023, stores and retail food establishments that furnish recycled paper bags or single-use plastic bags to customers must charge a 10-cent fee per bag. This fee may vary by store location as municipalities and counties can choose to adopt a higher fee by ordinance or resolution.
Beginning January 1, 2024, stores and retail food establishments are prohibited from providing single-use plastic bags to customers but may continue to provide recycled paper carryout bags, subject to the 10 cents, or more, per bag fee.
The legislation defines “carryout bag” as “a bag that is furnished to a customer at a store or retail food establishment at the point of sale for use by the customer to transport or carry purchased items.” Certain types of bags are carved out from the “carryout bag” definition, including:
- Pharmacy bags;
- Bags used inside of stores to contain loose items;
- Bags used to contain foods that would dampen or contaminate other items;
- Bags used to contain unwrapped prepared foods; and
- Laundry, dry cleaning, or garment bags.
Notably, businesses that operate exclusively in Colorado and have three or fewer locations are defined as “small stores” and are specifically excluded from both the single-use bag fee and the eventual plastic bag ban.
Colorado also exempts restaurants from both the bag fee and the carryout single-use plastic bag ban but prohibits restaurants from providing polystyrene (Styrofoam™) take-out containers after January 1, 2024.
Businesses subject to the fee will remit 60% of the fee to the municipality or county in which the store is located and retain 40% of the fee, which will not count toward revenue for state sales tax purposes. Stores and retail food establishments are required to remit to the municipalities or counties on a quarterly basis starting April 1, 2024. This poses potential compliance challenges as there is currently no uniform remittance system for the fee among the various home rule municipalities.
Insights
The single-use bag fee and eventual plastic bag ban pose multiple compliance challenges for stores and retail food establishments operating in Colorado. As Colorado is a home rule jurisdiction, localities self-administer local taxes. Not only can municipalities or counties choose to impose fees higher than 10 cents per bag by resolution or ordinance but also will have different remittance systems among each locality.
With hefty fines for noncompliance, stores and retail food establishments operating multiple locations across Colorado face a potential compliance cost increase to avoid rate, collection, and remittance missteps.
In addition, it would not be surprising if H.B. 21-1162 faces legal challenges from out-of-state taxpayers for violating the Commerce Clause. On its face, the bill excludes businesses that operate exclusively in Colorado and have three or fewer locations from the 10 cents per bag fee. Similarly situated multistate taxpayers with three or fewer stores in Colorado do not receive this exception and, thus, have substantial compliance burdens that small stores operating only in Colorado do not bear.
Note that this new law comes on the heels of Colorado’s imposition of a 27-cent retail delivery fee on all deliveries by motor vehicle to a location in Colorado with at least one item of tangible personal property subject to state sales or use tax. Compliance with these additional fees on top of state and home rule jurisdiction sales and use tax obligations makes Colorado one of the most challenging jurisdictions in the U.S. for businesses selling in the state.
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