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Effective January 1, 2023, Colorado imposes a 10-cent per bag plastic bag fee on most retail businesses.¹ For the first phase of the fee, which runs from January 1, 2023 through December 31, 2023, a store may furnish a recycled paper carryout bag or a single-use plastic carryout bag to a customer if the customer pays a fee of 10 cents per bag, or a higher fee adopted by the municipality or county in which the store is located. The fee also applies to bags used for deliveries. Beginning January 1, 2024, the fee remains in place, but the store may only furnish a recycled paper carryout bag. Plastic bags used for carryout or delivered goods will not be allowed in the state after that date.

The new law lists exemptions from the fee; most notable are the following:

• Restaurants are exempt from the bag fee and the plastic bag ban.
• The fee does not apply to customers that provide evidence that they participate in a federal or state food assistance program.
• Certain types of bags are exempt:
• Pharmacy bags
• Bags used by customers inside the establishment to package loose or bulk items
• Bags used to wrap items that if they were unwrapped could dampen or contaminate other items (i.e., meat, frozen food, plants)
• Bags used to contain unwrapped prepared foods or bakery items
• Laundry or dry-cleaning bags
• Businesses that operate exclusively in Colorado and have three or fewer locations are exempt from the fee.
• Farmers' markets and temporary events/vendors are exempt.

Although the bag fee is imposed on a state-wide basis, the bag fee is to be remitted locally to cities and counties rather than to the state. Under the new law, 60% of the carryout bag fee revenues will go to the municipality where the store is located (or the county if not located in a municipality); the remaining 40% may be retained by the retailer. This system is likely to create compliance challenges for some companies.

Due to a drafting error, retailers are not required to remit the fees until April 1, 2024, and will have to remit the fees on a quarterly basis. Some localities, however, are accepting fee remittances before April 1, 2024.

Implications

It is expected that challenges may arise due to the number of returns and different methods for remitting the fee under the new law. For instance, some home rule, self-collected municipalities are including the bag fee remittance as a part of the sales tax return, while other localities have separate forms or online filing requirements.

The fee, however, is not subject to sales tax or otherwise includable in the sales tax base. For sourcing, retailers that make deliveries using plastic or paper bags will need to remit the fee based on the address where the order is delivered, not where it originates. As such, it is crucial that retailers confirm the bag fee in municipalities where they operate, as it may be higher than 10 cents, if raised by ordinance or resolution.

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Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor

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ENDNOTE

¹ Colo. Laws 2021, ch. 440 (HB 21-1162), enacted July 6, 2021.